Reply to this classmate on the discussion topic with 100 words

Greetings Professor and classmates,

Risk premiums are the expected return required by an investor in exchange for putting their money in into a high-risk investment. According to the video "Motivating the topic: risk and return it states that the relationship between risk and return is fundamental in finance theory and is a principle followed in finance that investors need the inducement of higher rewards to take on perceived higher risk.

Investors should always be aware of the risk they are taking in hopes of earning a positive return on their investment. Under performing or being below their expectation is a significant risk and makes the volatility higher. (The market does not reward all risk)!

The Capital Asset pricing model, which looks at how the expected return is influenced by the risk premium of an investment, they each influence financial decisions regarding risk and returns because it affects the risk-free rate and risk premium rates, which affects the beta and equity risk premiums. According to the video lecture section "Measuring Risk: part II, Beta, Beta measures a stock volatility relative to the portfolio as a whole and a stock contribution of risk to the Portfolio. The beta moves with the market and ranges between 0.5 to 1.5 (3M, HP, Walmart, Walt Disney) According to the video, this is how investors build toward what is required or compensated for holding these.

Be Well! Best Wishes in this class!