Risk and Risk Premiums

Global Portfolio Management

Presentation by Natia Kakauridze
What is Risk?

The presence of risk means more

than one outcome is possible.
What is risk premium?
Risk premium is an expected return in
excess of that on risk-free securities.
The premium provides compensation
for the risk of an investment.
Risk Premiums
Default Risk_ the risk that company
will be unable to make required
payments on their debt obligations.
Inflation_ The overall general upward
price movement of goods and services
in an economy (often caused by a
increase in the supply of money),
usually as measured by the CPI and
the PPI.
Liquidity Premium_ a liquidity
premium is the extra return investors
demand for holding a security that is
less liquid.
Maturity Risk Premium_ maturity risk
refers to the risk that is associated
with uncertainty of interest rate as the
time passes and the longer the
securities maturity takes the higher
the amount of premium.
Types of Risk
Firm specific risk=
unsystematic risk= diversifiable
risk= business risk
Market risk= nondiversifiable
risk= systematic risk
Beta
 Market risk and Market risk premium

The End
Thanks for your attention