The Risk Premium is:

a. The difference between the expected YTM and the YTM of the comparable risk-free bond.

b. The difference between the expected YTM and the Promised YTM of the bond

c. The difference between the YTM of a corporate bond in one industry and a comparable corporate bond in another industry

d. All of the above

e. None of the above

Question

Avery Brooks

Business

17 March, 12:27

The Risk Premium is:

a. The difference between the expected YTM and the YTM of the comparable risk-free bond.

b. The difference between the expected YTM and the Promised YTM of the bond

c. The difference between the YTM of a corporate bond in one industry and a comparable corporate bond in another industry

d. All of the above

e. None of the above

+5

Answers (1)

Know the Answer?

Boyd · Answer 1

The correct answer is letter "A": The difference between the expected YTM and the YTM of the comparable risk-free bond.

Explanation:

Risk Premium is a return that exceeds the risk-free rate of return that the investment is expected to yield. The risk premium for an asset takes the form of compensation for investors who tolerate the additional risk of an investment compared to the risk-free asset. In fact, investors expect to receive risk premiums because of the risk they are engaged in with certain investment instruments.