ECONOMICS
RISK AND RETURN
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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risk-free rate.
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inflation rate.
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standard deviation.
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expected market rate of return.
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Detailed explanation-1: -The equity risk premium is calculated as the difference between the estimated real return on stocks and the estimated real return on safe bonds-that is, by subtracting the risk-free return from the expected asset return (the model makes a key assumption that current valuation multiples are roughly correct).
Detailed explanation-2: -The expected risk premium on a stock is equal to the expected return on the stock minus the: risk-free rate.
Detailed explanation-3: -Risk premium is the expected return required by an investor in exchange for putting their money into high-risk investments. In other words, the riskier the investment, the more return an investor needs to hold the asset in their stock portfolio.
Detailed explanation-4: -The risk premium of an investment is calculated by subtracting the risk-free return on investment from the actual return on investment and is a useful tool for estimating expected returns on relatively risky investments when compared to a risk-free investment.
Detailed explanation-5: -Risk Premium Definition The risk-free rate refers to the rate of return on a theoretically riskless asset or investment, such as a government bond. All other financial investments entail some degree of risk, and the return on the investment above the risk-free rate is called the risk premium.