Equity risk premium?

Which of the following is least likely to affect the equity risk premium? a. Liquidity risk. b. Financial risk. c. Inflation risk. d. Business risk

inflation risk. (cuz that is part of market risk)


by the way, what is financial risk? never heard of this term.


i think financial risk is risk of the company defaulting on its loans, not being able to get financing to support its operations etc

Yes, inflation…good job.


yes because it is built in Rm-rf. S

I agree, the company’s premium they pay will go up based on how liquid they are, what their risk is financially to invest in them and how risky their business is. Inflation wouldn’t necessarily affect how much it will cost them to issue equity as a company itself.

Financial risk is another term for financial leverage. Just remember that there are 5 sources of risk: 1.Business -BR (operating leverage) 2. Financial -FR (financial leverage) 3. Liquidity -LR 4. Exchange rate -ERR 5. Country risk - CR