Homework Answers
A risk premium is the excess return over risk free return as a compensation for taking risk.
In above case, Local bank offer is risk-free but investment in new start up is risky thus new start is paying extra to compensate the risk.
Risk premium in above offers = 10.5% - 3% = 7.5%
Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.
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