The nominal and real risk premium on the corporate bond. Introduction: Risk refers to the movement in the value of an investment. The movement can be positive or negative. The investor will gain if the movement is positive, and the investor will lose if the movement is negative. The nominal risk premium refers to the additional return demanded by a risky investment over the return obtained from a risk-free investment. The real risk premium refers to the risk premium after adjusting for the inflation rate in the economy.

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Chapter 12.3, Problem 12.3CCQ

Summary Introduction

To discuss: The nominal and real risk premium on the corporate bond.

Introduction:

Risk refers to the movement in the value of an investment. The movement can be positive or negative. The investor will gain if the movement is positive, and the investor will lose if the movement is negative.

The nominal risk premium refers to the additional return demanded by a risky investment over the return obtained from a risk-free investment.

The real risk premium refers to the risk premium after adjusting for the inflation rate in the economy.

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