What Is the Function of Risk Premium

question 158

Multiple Choice

What is the function of risk premium?

• A)To make sure that the value of the bond rises with inflation.
• B)To compensate bondholders for the chance the borrower will not repay the loan.
• C)To distinguish short from long-term bonds.
• D)To raise the return to holding government bonds.

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Definitions:

Accounting Profits

The total revenue of a business minus the explicit costs; it is the net income reported on the financial statement.

Economic Profits

The difference between total revenue and total costs, including both explicit and implicit costs.

Salary Offer

The amount of money proposed to be paid to an employee for their services, typically expressed as an annual sum or hourly wage.

Average Product

The output per unit of input, such as labor or capital, used in production; a measure of productivity.