What is Risk Premium?
Risk Premium The excess return that investors require for choosing a risky asset over a risk-free asset, used in asset pricing, cost of capital calculations, and portfolio management.
Source: CFA Institute, IFRS Foundation, FASB (GAAP), Basel III Framework
How is “Risk Premium” Used in Practice?
The equity risk premium reflects the additional return required by investors for holding stocks over government bonds.
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Who Needs to Know This Term?
- Financial Analysts
- Bankers
- Traders
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What is Risk Premium?
The excess return that investors require for choosing a risky asset over a risk-free asset, used in asset pricing, cost of capital calculations, and portfolio management.
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