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 ... 
Earned Premium
The amount of total premiums collected by an insurance company ... 
Net Premiums Written
The sum of premiums written by an insurance company over the ... 
Net Premium
The expected present value of a policyâ€™s benefits less the expected ... 
Basic Premium Factor
The acquisition expenses, underwriting expenses and profit, as ... 
RiskFree Asset
An asset which has a certain future return. Treasuries (especially ...

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. 
Bonds & Fixed Income
Tactical Tips For Bond Investors
Profit from longterm market trends by buying bonds when other investors shy away. 
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
RiskFree Rate of Return
The riskfree rate of return is the theoretical rate of return of an investment with zero risk. The riskfree rate represents the interest an investor would expect from an absolutely riskfree ... 
Investing Basics
What is a Premium Bond?
A premium bond is one that trades above its face or nominal amount. 
Bonds & Fixed Income
Buying bonds at a premium? Note these 4 things
Would you buy an investment that was guaranteed to go down in price? 
Bonds & Fixed Income
Premium Bonds: Problems And Opportunities
Learn all about premium bonds and how you can make them work for you. 
Options & Futures
How Risk Free Is The RiskFree Rate Of Return?
This rate is rarely questioned  unless the economy falls into disarray.

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 does a high equity risk premium signify about a company's stock future?
Learn about how a high equity risk premium affects a stock's future. These types of stocks tend to be the most volatile instruments ... Read Answer >> 
How do I calculate the equity risk premium in Excel?
Find out how to calculate the equity risk premium for an individual security using Microsoft Excel, including how to estimate ... Read Answer >> 
How is the riskfree rate of interest used to calculate other types of interest rates ...
Learn how the riskfree rate is used to compare the yields on bonds, and understand how Tbills are used as a proxy for the ... Read Answer >> 
How is it possible for a rate to be entirely riskfree?
Find out whether there really is such a thing as a riskfree rate of return, and learn why taking the idea of riskfree rates ... Read Answer >>