Risk Premiums. Is it possible for the risk premium to be negative before an investment is undertaken? Can the risk premium be negative after the fact? Explain.
Before the fact, for most assets the risk premium will be positive, investors demand compensation over and above the risk free return to invest their money in the risky asset. After the fact, the observed risk premium can be negative if the aset's nominal return is unexpectedly low, the risk free return is unexpectedly high, or some combination.