What is Risk Premium ?

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Risk Premium

A risk premium is the return in excess of the risk-free rate of return an investment is expected to yield. The risk-free rate of return is the theoretical rate of return of an investment with zero risk. In simple words for an asset, risk premium is a form of compensation or extra return for investor for taking the extra risk compared to risk free return. The risk premium is calculated by deducting the risk-free return from the actual return.

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