Risk Premium Calculator

Calculate Risk Premium (RP)



Formula

The formula to calculate the Risk Premium (RP) is:

\[ \text{RP} = \text{R}_F - \text{R}_A \]

Where:

Risk Premium Definition

A risk premium is the difference in returns between a risk-free asset and another asset class or individual asset. It represents the additional return an investor expects to earn from holding a risky asset instead of a risk-free asset. The risk premium compensates investors for the additional risk they take on when investing in riskier assets.

Example Calculation

Let's assume the following values:

Using the formula to calculate the Risk Premium:

\[ \text{RP} = 8 - 3 = 5\% \]

The Risk Premium is 5%.