Risk Premium Is Defined As

question 230

Multiple Choice

Risk premium is defined as:

• A) The total return on a risky asset that exceeds the inflation rate.
• B) The return on a risky asset that exceeds the return on a risk-free asset.
• C) The risk-free rate of return plus the inflation rate.
• D) The real rate of return that exceeds the risk-free rate of return.
• E) The rate of return required by investors in risky assets.

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Definitions:

Mortgage-Backed Security

A claim on payments made on the many mortgages bundled into this financial instrument.

Monthly Payments

Regular payments made monthly, often in the context of loans or mortgages, covering interest and possibly part of the principal.

Dual Banking System

A regulatory framework in which banks are chartered and supervised at both the state and federal levels.

State Banks

Financial institutions that are chartered by a state in the United States to provide banking services.