Define default risk premium (DRP)

Q: Explain Long-term liabilities?

A: The balance sheet of the business represents the financial position of the business with assets and…

Q: What is the market risk premium (rM - rRF)?

A: The market risk premium can be found using the CAPM Model As per CAPM Model, expected return = Risk…

Q: Define counterparty risk

A: Counterparty risk means two parties enter into a contract to meet their specific obligations on a…

Q: Present value is based on the concept of:   a. discounting.   b. duration.   c. systematic…

A: Present value means how much the value of future money worth today. The amount received today will…

Q: Explain portfolio insurance

A: Portfolio insurance: It is the procedure whereby short-selling stock record fates ensure an…

Q: Define market risk

A: Market risk is the risk of an investment due to over all volatility in the market returns due to…

Q: Differentiate between (a) stand-alone risk and(b) risk in a portfolio context

A: Investors can categorize the risks in two types. One is diversifiable risk and other one is…

Q: liquidity risk?  Define briefly with an appropriate example

A: Risk means uncertainties in the future. There is a high risk involved in every investment because…

Q: Explain real risk-free interest rate

A: The interest rate in real terms is the actual interest rate after adjusting the inflation effect.…

Q: Write a general expression for the yield on anydebt security (rd) and define these terms: real…

A: The real risk-free rate of interest: It is risk-free interest after inflation rate alteration. Let's…

Q: Define risk-free nominal interest rate of interest

A: Risk free rate is the minimum rate that the investor may expect to receive from their investment…

Q: Explain the difference between the unbiased expectations theory of the term structure of interest…

A: There are different theories that describe how the interest rates are set.

Q: Define each of the following terms:j. Real risk-free rate of interest, r*; nominal risk-free rate of…

A: Real risk-free rate of interest: The risk-free rate signifies the interest a saver might expect from…

Q: What Constitutes Default?

A: When an individual or a company is unable to pay the loan amount then it's termed as default. It…

Q: what does Market's Risk premium measure

A: Market's Risk premium is an important term used in the capital asset pricing model equation (CAPM)…

Q: Define spontaneous liabilities

A: Liabilities are the money owed by the company to outsiders. These liabilities can be classified as…

Q: clearly distinguish between norminal interest rate and effective interest rate

A: The term interest rate can be defined as the fixed income received on the investment. . There are…

Q: Define each of the following terms:k. Inflation premium (IP); default risk premium (DRP); liquidity;…

A: The default risk premium or (DRP) is the additional return to be paid by the borrower to the loan…

Q: Define discount bond

A: Bonds: A bond, also recognized as a fixed-income security, is a debt instrument shaped for the…

Q: risk-adjusted discount rate has

A: In financial terms, risk can be defined as the possibility that the real profits from an outcome or…

Q: Explain risk-free nominal rate of interest rate

A: This is the raw rate of return which does not take inflation into consideration. This is the rate…

Q: Why is the default F risk in a CMBS offering given more attention?

A: A default risk is the likelihood that the guarantor of a bond won't have the option to reimburse the…

Q: What is meant by the phrase natural hedging againstexchange rate risk?

A: Hedging is a mechanism that is used to eliminate or minimize the risk of loss that is associated…

Q: Explain risk-free interest rate (the nominal long-term rate)

A: The rate at which an additional amount that a borrower pays to the lender over the borrowing amount…

Q: Define each of the following terms:l. Interest rate risk; maturity risk premium (MRP); reinvestment…

A: Interest rate risk: Interest rate risk is the chance of a decay in the worth of an asset resultant…

Q: Describe the terms of  Contingent Liabilities with examples.

A: Contingent liability: This is an uncertain obligation that might be incurred on a future date as a…

Q: Explain risks in Portfolio?

A: Introduction: Risk is nothing but a potential for emergence of unexpected occurrences. There is…

Q: Financial Risk Management  Differentiate between Credit Default Swap (CDS) and Total Return Swap…

A: The investors when investing their money in some securities they earn the gains that are returned.…

Q: Provide a descriptive formula for each of the following (e.g., Total risk =?+?):   a. Total risk=…

A:

Q: What differentiates a Total Return Swap (TRS) from a Loan Portfolio Swap (LPS)?

A: Swap-  A swap is an agreement between two counterparties to exchange financial instruments or…

Q: What is maturity risk premium (MRP)?

A: normally Maturity risk premium is the extra return that an investor will get for bearing the…

Q: Explain current liabilities are riskier than long-term liabilities?

A: Liabilities:   A liability is a sum of money owed by the company towards external entities like a…

Q: Define real risk-free interest rate

A: Real Risk Free Interest Rate is a theoretical concept which refers to the required return required…

Q: risk with practical examples

A: Default risk is the risk that a lender takes on in the chance that a borrower will be unable to make…

Q: Distinguish between the real risk-free rate of interest, r*, and the nominal, or quoted,risk-free…

A: The interest rate is the cost of carry some loan or money. It will provide the income to the lender…

Q: Which of the following is included inthe risk-free rate? O A. the default premium O B. the expected…

A: Risk free rate is the return on the asset that has zero risk associated to it. It is a theoretical…

Q: "Fisher effect defines the relationship between nominal rates, real rates, infiation, default…

A: Fischer effect:- It is an important concept of economics that describes the releationship between…

Q: Explain Contingent Liabilities.

A: Contingent liabilities are the liabilities of the company but they can not be classified as current…

Q: Explain portfolio risk

A: Portfolio risk reflects the overall risk for a portfolio of investments. It is the combined risk of…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.