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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

If investors aversion to risk increased, would the risk premium on a high-beta stock increase by more or less than that on a low-beta stock? Explain.

Summary Introduction

To explain: The effect on risk premium if the investor’s aversion to risk increases.

Introduction:

Portfolio Beta:

The portfolio beta is a measure of the volatility of the portfolio. It measures how the stock moves in the market. A high portfolio beta shows that securities are more volatile in the price movements while a low beta represents that securities are less volatile in the price movements.

Risk Premium:

The return which an investment can give in extra risk-free rate of return is the risk premium. The risk premium is expensive for borrowers.

Explanation
  • The risk premium is the extra return on an investment and the beta is a tool to measure the movement of stock in the market...

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