The Risk Premium Is

question 51

Multiple Choice

The risk premium is

• A)the amount by which the expected return on a risky asset exceeds the return on an otherwise comparable safe asset.
• B)a measure of the riskiness of the overall economy in a domestic country compared with a foreign country.
• C)the amount an investor must pay to insure his or her stock portfolio to protect against a fall in value.
• D)the amount an investment bank charges to guarantee an annuity that pays a fixed rate of return in the future.

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Definitions:

Agency Theory

The theory that deals with problems caused by separating ownership from control in the modern corporation.

Fiduciary Duty

A legal obligation of one party to act in the best interest of another when entrusted with care of property, finances, or other responsibilities.

Debt Contracts

A legal agreement specifying the conditions under which money is borrowed and must be repaid by the borrower.

Monitoring Costs

Expenses related to overseeing and managing investments or ensuring compliance within financial agreements.