Historic Risk Premium
The expected rate of return on the risk-free rate and the market portfolio is the risk premium. The financial data and the determined an estimated rate of return are focused by the investors when the historic risk premium allows. The investment type, include stock and bond are also vary to the historic risk premium. However, the decision could be taken regarding investment and judgment could be done base on the past financial performance, as the investors utilize the information.
Effect of Inflation on Our Financial Assets
In a number of ways financial assets can be affected by the inflation, the companies can set the price of their goods and services in regards to counteract for inflation because stocks are the better hedge against inflation. Inflation eats away their principle for the bond investor; however, the amount of revenue, which is available for the future, can be reduced.
Risk Premium on Our Credit Cards Justifiable
Yes, on the credit card the risk premium is justifiable, due to the higher number of the defaults. The individual that have the credit background or the questionable credit rating, the card are often lending to them by the bank. The people who have the defaults on the card rate are charged higher interest rate or premium, to know about that the banks are protected.
Different Between Uncertainty And Risk
Uncertainty can be known as unforeseen or unknowing, the risk could be explained as the best possible choice among the different choices, in which circumstance are considered. However, risk can be accounted for offset, as for the investors, the risk could be a better variable oran obstacles. No one can get the exact outcome of the risk because it is like a rolling dice.
In optimal portfolio the return for investors can be maximized and risks can be minimized, however, globalization is playing an important role to manage the portfolio, as the investors can invest in the foreign market. The political climate also needs to consider in the foreign market; as investing in a political market can result in the investor’s risks, because there may be the political instability.
Beta A Necessary Measure Correct Return of A Financial Asset
In relationship to benchmark or measure, the beta risk can be the assets risk, in the market. The systematic risk associated with the return on given stock can also be measured by beta measure. For most of the stocks, the beta value ranges from the -1 to 2.
Different Between Systematic And Systemic Risk
Every aspect of financial market including inflation, recession, war, political changes is there in the systematic risk, it also involves the investment risks or uncertainties, which are in the foreign economy. However, through the diversification of the investment, the systematic results can be reduced in the market.