DEFINITION of 'Risk Premium'
The return in excess of the riskfree rate of return that an investment is expected to yield. An asset's risk premium is a form of compensation for investors who tolerate the extra risk  compared to that of a riskfree asset  in a given investment.
INVESTOPEDIA EXPLAINS 'Risk Premium'
Think of a risk premium as a form of hazard pay for your investments. Just as employees who work relatively dangerous jobs receive hazard pay as compensation for the risks they undertake, risky investments must provide an investor with the potential for larger returns to warrant the risks of the investment.
For example, highquality corporate bonds issued by established corporations earning large profits have very little risk of default. Therefore, such bonds will pay a lower interest rate (or yield) than bonds issued by lessestablished companies with uncertain profitability and relatively higher default risk.

At A Premium
The sale of an asset or item at a price significantly above the ... 
RiskAdjusted Return
A concept that refines an investment's return by measuring how ... 
Risk Tolerance
The degree of variability in investment returns that an individual ... 
RiskFree Rate Of Return
The theoretical rate of return of an investment with zero risk. ... 
Default Risk
The event in which companies or individuals will be unable to ... 
RiskReturn Tradeoff
The principle that potential return rises with an increase in ...

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