Explain Risk Premiums, Interest Rate Risk, and Default Risk?

Q: How is the risk-adjusted discount-rate approach more commonly practiced in the real world?

A: Risk adjusted discount rate approach is an approach which is used in assessment of various long-term…

Q: Differentiate between price risk and reinvestment risk.

A: Price risk is the risk of decline of the price of the investment or an asset after the underlying…

Q: Is it true that current liabilities are riskier than long-term liabilities?

A: Liabilities: Liabilities are debt and obligations of a business. These are the claims against the…

Q: Define counterparty risk

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

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

A: The Capital Asset Pricing Model describes the relationship between the projected return for assets…

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: How to calculate Present Value Interest Factors?

A: PVIF is known as Present Value Interest Factor. PVIF refers to a factor that is very useful in…

Q: o risk premiums influence financial decisions regarding risk and re

A: Step 1 A risk premium is an investment return that is expected to generate more than the level of a…

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: Differentiate between interest rate risk and reinvestmentrate risk.

A: The major representation of the interest rate risk is the differentiation in the bond market price…

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: Why does standalone risk differ from portfolio risk? Explain and give examples! Relates your answer…

A: While making an investment, an investor is required to thoroughly examine all types of risks and…

Q: Define Risk Premium

A: It is defined as the distinction between the expected return for a portfolio or an investment and…

Q: Compare long-term instruments and short-term risks, in terms of the various types of risk to which…

A: Interest rate risk is the likelihood that the value of a fixed-rate debt instrument may fall when…

Q: Is the risk-free rate the Treasury yield?

A: The risk-free rate refers to the rate of return on an investment that is having zero risk of loss.…

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: a) What is the general characteristics of Risk Financing – Risk Retention Methods

A: Hi, Thanks for the Question, Since you asked multiple questions, we will answer first question for…

Q: Define the real risk-free rate (r*). What security canbe used as an estimate of r*? What is the…

A: Answer: Real risk-free return: Real risk-free return is nothing but a minimum rate of return…

Q: What is definitions of this?   Systematic risk  Risk free rate of return  Market rate of…

A: Capital asset pricing model (CAPM) can be used to compute the return expected by the investors by…

Q: What is market risk?

A: Investments in assets are subject to risks and uncertainty of returns  Risks can be systematic or…

Q: Calculate and label the market risk premium

A: Security Market Line or SML is the upward sloping straight line. This line is the graphical…

Q: Explain Comparing Risk Premiums?

A: Risk premium is additional premium an investor achieves by investing in a riskier financial…

Q: Explain the difference between financial risk andbusiness risk.

A: Risk is referred as the chance of loss. An activity which leads to loss is termed as risk. The risk…

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: Explain risk premium

A: An investor investing in a risky asset would demand a greater interest rate to compensate for the…

Q: What is counterparty risk?

A: Counterparty risk can exist in trading, credit, investment.

Q: Explain risks in Portfolio?

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

Q: What is equity risk premium?

A: The risk premium is the extra return an investor receives for taking market risk. We know that risk…

Q: Define Arbitrage (risk-free) portfolio

A: An arbitrage portfolio is a portfolio with zero factor risk - all the factor sensitivities are equal…

Q: Compare speculative risk and pure risk.

A: Pure Risk is the possibility where there is loss or no loss. Speculative risk  is a possibility of…

Q: Immunization is intended to protect a portfolio against interest rate risk. What should be done? How…

A: Immunization is the strategy under which the checks on the interest rates are provided to the firms.…

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: 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: Define default risk premium (DRP)

A: Generally, the interest rate charged is made up of the following components: Risk-Free Rate…

Q: How are total risk, market risk, and diversifiable risk related?

A: There are different types of risk associated with the investment. Some can be controlled and some…