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Unformatted text preview: free of default risk , the rate of return on a Treasury security is considered the “risk-free” rate of return. Question: How large is the risk premium required to buy an individual corporate security? Answer: It depends on the individual corporate security. Required Return: the return that an investor requires on an asset given its particular risk . (i.e. the GREATER the risk, the GREATER the required rate of return and vice versa.) Question: Which do you need to know first, the risk or the required return ? Answer: In order to calculate the required return, you must first understand the RISK !...
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- Summer '11