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.
VIDEO
BREAKING DOWN '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
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The theoretical rate of return of an investment with zero risk. ... 
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The event in which companies or individuals will be unable to ... 
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The earnings per share for the most recent 12month period divided ... 
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The principle that potential return rises with an increase in ...

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