A Risk Premium Is

question 3

Multiple Choice

A risk premium is

• A) a measure calculated to reflect the riskiness of future profits.
• B) subtracted from the discount rate when calculating the present value of a future stream of risky profits.
• C) lower the more risky the future stream of profits.
• D) an additional compensation paid to the workers of a business enterprise.

---

Definitions:

Production Possibilities Curve

A graph that shows the various combinations of outputs that a society can produce given the available factors of production and technology.

Specialization

The process of focusing on a narrow area of expertise or production, enhancing efficiency and skill through the division of labor.

High Consumption-Low Investment

This term refers to an economic situation where a country or entity spends a significant portion of its income on consumption rather than investing in capital goods that could contribute to future growth.

High Investment-Low Consumption

An economic strategy or situation that focuses on higher levels of investment in capital and infrastructure while maintaining lower levels of consumer spending.