The Default Risk Premium

question 21

Multiple Choice

The default risk premium

• A)brings the expected yield on a security into equality with the expected yield on a default-free security.
• B)compensates risk-neutral investors for increased variability in yields.
• C)required by risk-neutral investors is always greater than that required by risk-averse investors.
• D)is always zero for risk-neutral investors.

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Definitions:

Direct Materials

Materials in their basic form that are specifically identifiable with the manufacturing of certain products or services.

Total Variance

The overall difference between the budgeted or standard cost figures and the actual figures.

Variable Overhead

A redefinition of variable manufacturing overhead; variable overhead encompasses all variable expenses involved in the operation of a business that are not directly tied to a specific product unit.

Standard Quantity

A benchmark or norm for the amount of materials or labor expected to be used during the production of a good or service.