Risk Premium Components - CFA® Level 1 Exam: Test Prep

Risk Premium Components

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Question

Which of the following is a component of the risk premium?

I. Business risk -

II. Financial risk -

III. Liquidity risk -

IV. Exchange rate risk -

V. Country risk -

Answers

A. III & V

B. II & IV

C. I, II, III, IV & V

D. I, II, III & IV

E. III & IV

F. IV & V

G. I & II

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Explanations

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A. B. C. D. E. F. G.

The risk premium is comprised of each of these components which are influenced by differences in the general economic and political environment as well differences in trade relations and operating leverage employed within a country. After each of these components is analyzed, a unique risk premium may be assigned to a country.

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