The amount by which the required discount rate exceeds the risk-free rate is called
A) the opportunity cost.
B) the risk equivalent.
C) the risk premium.
D) the excess risk.

Question

Quizplus · Accepted Answer

The correct answer is C) the risk premium. This is the amount of compensation required to undertake an investment that has more risk than an investment in risk-free assets. The risk premium represents the extra return over the risk-free rate that an investor expects to receive for bearing the risk of a particular investment.

The Amount by Which the Required Discount Rate Exceeds the Risk-Free