Which of the Following Will Increase the Expected Risk Premium

question 39

Multiple Choice

Which of the following will increase the expected risk premium for a security, all else constant?
I. an increase in the security's expected return
II. a decrease in the security's expected return
III. an increase in the risk-free rate
IV. a decrease in the risk-free rate

• A)I only
• B)III only
• C)IV only
• D)I and IV only
• E)II and III only

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Definitions:

Discount Rate

The interest rate used to determine the present value of future cash flows in discounted cash flow analysis.

Scrap Value

The estimated worth of a tangible asset at the end of its useful life, often related to material goods that can be recycled or sold for parts.

Investment

The allocation of resources, typically monetary, into assets or projects expected to generate returns or income over time.

Present Discounted Value

The value of a future amount of money in today's terms, adjusted for the time value of money.