Equity risk premium
Equity risk premiumThe concept that justifies investment in stocks, where your capital is at risk, rather than gilt-edged bonds which are as safe an investment as you can get and where your capital is not at risk provided you hold the bond til maturity.The theory goes that it is only worth investing in stocks if the return you get exceeds the return you could get on gilts - otherwise, why would you take on the extra risk? The difference in returns is known as the equity risk premium.Every historical analysis of returns achieved by stocks compared to bonds shows that stocks outperform bonds in the long term. This is why you repeatedly hear pundits say that the stock market, while risky in the short term, is not risky in the long term. The key thing, as a private investor, is to leave your money in the market for long enough for the long term benefit to eradicate the short term risk. Stick your money in the market for two months, and it might go down 20% if you are unlucky. Stick it in a well-diversified portfolio for 30 years, and it should produce returns that comfortably exceed what you could have got from bonds.
Warrant premiumWarrant premium
The extra amount you pay for a warrant over and above its intrinsic value. The premium on a warrant is calculated as: (the price of the warrant) - (difference between the exercise price and the price of the underlying asset). So if a warrant costing 8p gives you the right to buy a share at 75p, and that share is currently trading at 70p, the premium is 3p (8-5).
Insurance premiumInsurance premium
Payments calculated by the insurance company based on risk factors that must be made by the insured to guarantee protection of property loss under an insurance policy.
Premium bondPremium bond
A bond that is selling for more than its par value.
Default premiumDefault premium
A differential in promised yield that compensates the investor for the risk inherent in purchasing a corporate bond that entails some risk of default.
Option premiumOption premium
The 'price' of the option, paid by the buyer.
Further SuggestionsRisk premium
life assurance premium relief
High premium convertible debenture
Waiver of premium
Indemnity Guarantee Premium
Unamortized premiums on investments
insurance premium tax
single premium life insurance
Risk premium approach
Single premium life insurance
Tender offer premium