Risk Premium

Business / Taxes / Risk Premium: A risk premium is one way to measure the risk you'd take in buying a specific investment. Some analysts define risk premium as the difference between the current risk-free return — defined as the yield on a 13-week US Treasury bill — and the total return on the investment you're considering. Other measures of risk premium, which are applied specifically to stocks, are a stock's beta, or the volatility of that stock in relation to the stock market as a whole, and a stock's alpha, which is based on an evaluation of the stock's intrinsic value. Similarly, the higher interest rates that bond issuers typically offer on bonds below investment grade may be considered a risk premium, since the higher rate, and potentially greater return, is a way to compensate for the greater risk.

Other Words for Premium

Premium Noun Synonyms: bonus, extra, dividend, prize, award, reward, perquisite
Premium Verb Synonyms: incentive, inducement, stimulus, incitement, lure, bait, spur, goad, reward, come-on, freebie
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Other Words for Risk

Risk Noun Synonyms: danger, peril, jeopardy, hazard, chance, gamble
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Market Price Of Risk

Business / Finance / Market Price Of Risk: A measure of the extra return, or risk premium, that investors demand to bear risk. The reward-to-risk ratio of the market portfolio. MORE

Risk-Free Return

Business / Taxes / Risk-Free Return: When you buy a US Treasury bill that matures in 13 weeks, you're making a risk-free investment in the sense that there's virtually no chance of losing your principal (since the bill is backed by the U MORE

Risk-Adjusted Discount Rate

Business / Finance / Risk-Adjusted Discount Rate: The rate established by adding an expected risk premium to the risk-free rate in order to determine the present value of a risky investment. MORE

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