The reward investors require for taking risks is called the risk premium. It is the additional return that compensates investors for bearing uncertainty and volatility. The reward that investors require for taking risk is called the risk premium. The risk premium is the additional return that investors expect in exchange for bearing the uncertainty and volatility associated with an investment. It compensates investors for the chance of losing some or all of their investment. For example, if the required return on a low-risk investment (such as a government bond) is 3%, and an investor is considering a higher-risk investment, they would expect a higher return. The difference between the required return and the risk-free rate is the risk premium. The market risk premium is a specific type of risk premium that compensates investors for the risk of a particular stock or portfolio compared to the overall market.Final answer:
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FAQs
Which of the following is the reward investors require for taking risk? Multiple Choice O required return - brainly.com? ›
Final answer:
Which of the following is the reward investors require for taking risk? ›Question: Market risk premium is the reward investors require for taking risk.
What is the reward for taking systematic stock market risk? ›The equity risk premium is why it's worth investing in the stock market despite the uncertainty. It represents how investors are rewarded for systematic risk. The equity risk premium is the difference between the overall stock market's returns and what you'd get for only investing at the risk-free rate.
Which two factors have the greatest influence on risk for an investment brainly? ›Expert-Verified Answer
The two factors that have the greatest influence on risk for an investment are the demand for the investment and the duration of the investment.
The term 'risk' refers to the possiblitiy of inadequate profits or even losses due to uncertainties or unexpected events. The reward of bearing the risk is profit.
What is the risk reward for investors? ›The risk-reward ratio is a measure of potential profit to potential loss for a given investment or project. A lower risk-reward ratio is generally preferable because it offers the potential for a greater return on investment without undue risk-taking.
Which of these is the reward for taking systematic stock market risk multiple choice risk free rate risk premium required return market risk premium? ›The correct option is the "market risk premium." Let's delve into why this choice is accurate and br...
What are the risks rewards for investing in stocks? ›Key Takeaways
Investing in stocks offers many rewards, like capital gains, dividends, retirement planning, and financial freedom. A few common risks of investing in individual stocks include lost funds, not outpacing inflation, failing to meet your financial goals, and expensive fees.
Systematic risk is the potential for reward. Non-systematic risk is just risk with no additional potential for reward. Therefore, it is imperative that you construct your portfolio for the amount of systematic risk you are comfortable with while avoiding non-systematic risk altogether.
Which of the following investors can take highest risk? ›The highest risk investments are cryptocurrency, individual stocks, private companies, peer-to-peer lending, hedge funds and private equity funds.
Which of the following provides the highest risk to investors? ›
Answer and Explanation: The stock has the highest level of risk. Stocks: Buying a stock is taking a piece of ownership in the company, and the profits depend on how well the company is doing.
Which type of risk matters to investors and why? ›Credit or Default Risk
Credit risk is the risk that a borrower will be unable to pay the contractual interest or principal on its debt obligations. 10 This type of risk is particularly concerning to investors who hold bonds in their portfolios.
A reward a businessman receives after bearing the risk of the business is known as profit.
What is an investor willing to take risks? ›Investors who are willing to accept more investment risk may benefit from higher returns in the good times, but they also get hit harder during the bad times. A more conservative portfolio generally means there are fewer highs, but also fewer lows.
What is a risk taker investor? ›Risk takers approach investing in much the same way that they approach life. They tend to be less long-term oriented and more focused on short-term gains. They thrive on seeing immediate results and hate to miss out on opportunities.
What is the risk reward consideration? ›In financial markets, risk and reward are inseparable, as they form a trade-off pair – ie the more risk you're willing to take on, the higher the potential reward or loss could be. On the other hand, the less risk you accept, the lower your potential rewards.