Investopedia

Continue to Site »

Risk Discount

Filed Under » ,
Dictionary Says

Definition of 'Risk Discount'

A situation where a particular investor, either an individual or firm, decides to receive less of a return on their investment in exchange for less risk. The risk discount is the exact opposite of the risk premium, and the degree to which any one person chooses the amount of the discount will vary by person to person.
Investopedia Says

Investopedia explains 'Risk Discount'

The degree to which someone chooses to exchange return for risk will depend on their individual risk tolerance. Those who choose to take a risk discount versus a risk premium are people who are very risk adverse.

For example, an investor who decides to take the risk discount may choose to purchase a high-grade corporate bond with a yield to maturity (YTM) of 5%, while an equivalent bond from another firm has a YTM of 5.25%. This investor may perceive the lower yielding bond as a safer investment, and choose to take the risk discount.

Articles Of Interest

  1.

    How Interest Rates Affect The Stock Market

    Whether you're buying lunch, a home or a stock, you're influenced by interest rates.

  2. The Capital Asset Pricing Model: An Overview

    CAPM helps you determine what return you deserve for putting your money at risk.

  3. Projected Returns: Honing The Craft

    Find out how to forecast long-term returns on the three major asset classes.

  4. Equity Premiums: Looking Back And Looking Ahead

    If stocks become less profitable in the future, you may have to change your investment strategy.

  5. How To Profit From Risk

    CDs may look safe and attractive but considering most pay a rate that is less than the rate of inflation seniors today risk actually losing money with CDs. We need to be our own money managers ...

  6. Investing In REITs Instead Of Property

    Learn why this one particular REIT is a better investment than holding physical property in your retirement portfolio.

  7. Multi-Asset Funds Or Your Own Mix?

    The underlying concept of mixed funds is very appealing. Discover if you're better off with professional management or creating a mixed fund of your own.

  8. How To Adjust Your Portfolio In A Bear Or Bull Market

    While investors shouldn’t feel compelled to change their portfolios radically overnight in reaction to the market's daily moves, small adjustments in the face of a bull or bear market could be ...

  9. The Truth Behind Tactical ETF Investing

    Are tactical ETFs reasonable and effective investment strategies or just plain speculative behavior?

  10. 6 Popular ETF Types For Your Portfolio

    Exchange traded funds are an extremely popular diversification tool that can protect your portfolio during troubled periods.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  2. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  3. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  4. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.

  5. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.

  6. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.
Trading Center