What is 'Market Risk Premium'
The difference between the expected return on a market portfolio and the riskfree rate. Market risk premium is equal to the slope of the security market line (SML), a capital asset pricing model. Three distinct concepts are part of market risk premium:
1) Required market risk premium: the return of a portfolio over the riskfree rate (such as that of treasury bonds) required by an investor;
2) Historical market risk premium: the historical differential return of the market over treasury bonds; and
3) Expected market risk premium: the expected differential return of the market over treasury bonds.
Also called equity premium, market premium and risk premium.
BREAKING DOWN 'Market Risk Premium'
The historical market risk premium will be the same for all investors since the value is based on what actually happened. The required and expected market premiums, however, will differ from investor to investor based on risk tolerance and investing styles. The market risk premium can be calculated as follows:
Market Risk Premium = Expected Return of the Market â€“ RiskFree Rate
The expected return of the market can be based on the S&P 500, for example, while the riskfree rate is often based on the current returns of treasury bonds.

Risk Premium
The return in excess of the riskfree rate of return that an ... 
Equity Risk Premium
The excess return that investing in the stock market provides ... 
Earned Premium
The amount of total premiums collected by an insurance company ... 
Amortizable Bond Premium
A tax term referring to the excess premium paid over and above ... 
Net Premiums Written
The sum of premiums written by an insurance company over the ... 
Written Premium
An accounting term in the insurance business used to describe ...

Investing
Understanding Market Risk Premium
Market risk premium is equal to the expected return on an investment minus the riskfree rate. The riskfree rate is the minimum rate investors could expect to receive on an investment if it ... 
Professionals
Security Market Line And Beta Basics
This approach to risk will help you better understand business and investing decisions. 
Investing Basics
How to Calculate Risk Premium
Think of a risk premium as a form of hazard pay for risky investments. 
Fundamental Analysis
Calculating the Equity Risk Premium
Equity risk premium is the excess expected return of a stock, or the stock market as a whole, over the riskfree rate. 
Professionals
Equity Risk Premium: Applications and Real Life Examples
The more risky equity is the higher risk premium the investors will demand for investing on that equity. Thus the level of equity risk premium will change from equity to equity depending on the ... 
Bonds & Fixed Income
Tactical Tips For Bond Investors
Profit from longterm market trends by buying bonds when other investors shy away. 
Professionals
Other Terms
FINRA/NASAA Series 66: Section 2 Other Terms. This section discusses measures of portfolio return: risk premium, expected return and benchmark portfolios. 
Fundamental Analysis
The EquityRisk Premium: More Risk For Higher Returns
Learn how the expected extra return on stocks is measured and why academic studies usually estimate a low premium. 
Investing Basics
What Investors Should Know About Interest Rates
Understanding interest rates helps you answer the fundamental question of where to put your money. 
Investing Basics
Explaining Premiums
Premium has a few different meanings in the financial world.

What is the historical market risk premium?
Learn what the historical market risk premium is and the different figures that result from an analyst's choice of calculations ... Read Answer >> 
Is market risk premium the same for all investors and investments?
Learn about how market risk premiums are determined, how they are calculated, why some assets require higher premiums and ... Read Answer >> 
Is the market risk premium the same for stocks and bonds?
Take a look at historical equity risk premium and credit spreads in the United States, which suggest that equities carry ... Read Answer >> 
How is the expected market return determined when calculating market risk premium?
Find out how the expected market return rate is determined when calculating market risk premium and how these figures are ... Read Answer >> 
How accurate is the equity risk premium in evaluating a stock?
Learn about the drawbacks of using the equity risk premium to evaluate a stock, and understand how it is calculated using ... Read Answer >> 
What is the correlation between equity risk premium and risk?
Learn about the relationship between the riskfree rate of return and the equity risk premium, and understand how the riskfree ... Read Answer >>