Market Risk Premium
Definition
What is Market Risk Premium?
The expected returnThe probability-weighted average of possible future returns or an estimate of future return. of the broad market above the risk-free rateThe return assumed to be available from an investment with negligible default risk over a matching period..
Example in practice
How This Looks in Practice
If expected market return is 15% and the risk-free rate is 10%, the premium is 5%.
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Related Terms
Capital Asset Pricing Model
A model linking expected return to the risk-free rate, market risk premium, and an asset's beta.
Portfolio TheorySecurity Market Line
A line showing the CAPM relationship between expected return and beta.
Portfolio TheoryEfficient Frontier
The set of portfolios offering the highest expected return for each level of risk under stated assumptions.
Fraud & ScamsPonzi Scheme
A fraud that pays earlier participants using money from newer participants rather than genuine investment profits.