Consider the Case of a Simple One-Period Framework $\gamma$ = 085 What Is the Required Risk Premium (Round to Two

question 53

Multiple Choice

Consider the case of a simple one-period framework. If i = 12.50 per cent, k = 14.85 per cent, p = 0.98, and $\gamma$ = 0.85 what is the required risk premium (round to two decimals) ?

• A) 0.34 per cent
• B) 0.35 per cent
• C) 0.98 per cent
• D) 2.35 per cent

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Definitions:

Rate

The percentage at which interest is charged on a loan or earned on an investment.

Term Deposit

A banking product where money is locked away for a certain period of time at a fixed interest rate.

Maturity

The time at which a financial instrument, investment, or insurance policy reaches its final value and the principal is repaid or returned.

Interest

The price paid for the opportunity to use borrowed finances, generally expressed through an annual percentage.