What is the formula for calculating the risk premium？
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What is the formula for calculating the risk premium？
The formula for calculating the risk premium is:
Risk Premium = Expected Return - Risk-free Rate
Where:
- Expected Return: The return that an investor expects to earn from an investment.
- Risk-free Rate: The rate of return on a risk-free investment, such as a U.S. Treasury bond or a savings account.
The risk premium represents the additional return that an investor requires to compensate for the risk of an investment over and above the risk-free rate.
Risk Premium = Expected Return - Risk-free Rate
Where:
- Expected Return: The return that an investor expects to earn from an investment.
- Risk-free Rate: The rate of return on a risk-free investment, such as a U.S. Treasury bond or a savings account.
The risk premium represents the additional return that an investor requires to compensate for the risk of an investment over and above the risk-free rate.
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