What is a 'Risk Premium'
A risk premium is 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.
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.

Market Risk Premium
The difference between the expected return on a market portfolio ... 
RiskFree Return
The theoretical rate of return attributed to an investment with ... 
RiskFree Rate Of Return
The theoretical rate of return of an investment with zero risk. ... 
RiskFree Asset
An asset which has a certain future return. Treasuries (especially ... 
Capital Allocation Line  CAL
A line created in a graph of all possible combinations of risky ... 
Risk
The chance that an investment's actual return will be different ...

Managing Wealth
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 ... 
Managing Wealth
How to Calculate Risk Premium
Think of a risk premium as a form of hazard pay for risky investments. 
Markets
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
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. 
Markets
How Risk Free Is The RiskFree Rate Of Return?
This rate is rarely questioned  unless the economy falls into disarray. 
Managing Wealth
What Investors Should Know About Interest Rates
Understanding interest rates helps you answer the fundamental question of where to put your money. 
Financial Advisor
RiskFree & 20% Return? More Like 100% Scam
An investment that promises a riskfree return of 20% is 100% likely to be a scam. 
Managing Wealth
Tactical Tips For Bond Investors
Profit from longterm market trends by buying bonds when other investors shy away. 
Managing Wealth
Why RiskFree Investments Don't Exist
We explain the risks inherent with all types of investments and why riskfree investments do not exist. 
Managing Wealth
How Interest Rates Affect Property Values
Along with their impact on mortgages, interest rates affect capital flows, the supply and demand for capital, and an investorâ€™s required rate of return.

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 >> 
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 >> 
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 >> 
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 >> 
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 >> 
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 >>