Why would a higher premium result in lower stock prices

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Reference no: EM131305337

During May 2010, the Dow Jones Industrial Average declined by nearly 8%, its worst performance during May since 1940. Brian Bethune, a financial economist at HIS Global Insight, was quoted as saying: "Investors are demanding a higher premium for their perceived higher risk."

a. What does it mean to say that investors are demanding a "higher premium"?

b. Why would a higher premium result in lower stock prices?

Reference no: EM131305337

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