Risk Flashcards
1
Q
Risk premium
A
The return in excess of the risk-free rate than an investment is expected to yield. An asset’s risk premium is a form of compensation for investors who tolerate extra risk
2
Q
What is the risk free rate
A
Theoretical rate of return on an investment with zero risk. The risk free rate represents the interest an investor would expect from an absolutely risk-free investment over a specific period of time
This is the minimum return investor expects from the investment because he or she will not accept additional risk unless the rate of return is greater than the risk free-rate
