Risk Premium Calculator
Risk Premium Calculator helps calculating the Risk Premium.
What is Risk Premium?
Risk Premium is the return in excess of the risk-free rate of return an investment is expected to yield.
The Formula of Risk Premium
The basic formula of the Risk Premium is as follows:
Risk Premium = Risky Asset Expected Return - Risk Free Rate of Return
Where:
Risky Asset Expected Return is the retrun, a risky asset is expected to yield
Example of Risk Premium
If the Risky Asset is expected to yield a return of 10% (Risky Asset Expected Return = 10%),
and the the risk free asset yiels a return of 3% (Risk Free Rate of Return = 3%),
the Risk Premium equals to 7% (10% - 3%).