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Give an equation that shows the relationship between actual, desired, and excess reserves.
Risk Premium
The extra return expected for taking on additional risk, over and above the risk-free rate of return.
Firm's Risk
The total risk associated with running a business, including both systematic and unsystematic risks.
Market Risk
The risk of losses in investments due to market variables such as price changes, interest rates, or currency exchange rates.
Discount Rate
The interest rate used to discount future cash flows of a financial instrument to present value.
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