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Mahesh Kamath

· started a discussion

· 1 Months ago

Doubt (Question: 172615.3 )

What is risk premium?

Question:

DIRECTIONS: Study the following graphs carefully and give the answer of following questions: 


The line graph gives the global prices for coffee seeds (in $ per quintal) and the risk premium (percentage of price) for the period 1980-2004


The pie chart gives the breakup of the global price of coffee seeds in 2004




The global price for coffee seeds remains the same across the different coffee producing countries for the given year. 

What is the average value for the risk premium per quintal for the period 1985-1999? (Consider that the risk premium per coffee seeds price per quintal remains the same as the previous known value for the intermediate years).

Options:
A) $3.5 
B) $2.26
C) $4.3
D) $5.2
E) None of these 
Solution:
Ans(b):


Year

Risk Premium

1985-1989

0.15 × 15 = $2.25

1990-1994

0.13 × 20 = $2.60

1995-1999

0.13 × 15 = $1.95

∴ Average premium value

= 5 × \(\cfrac{(2.25 + 2.60 + 1.95)}{15}\)     = $2.26

Knowledge Expert

· commented

· 1 Months ago

its given in the graph, risk premium viz. percentage of price
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