A **risk premium** is the minimum amount of money by which the expected return on a risky asset must exceed the known return on a risk-free asset, or the expected return on a less risky asset, in order to induce an individual to hold the risky asset rather than the risk-free asset. Thus it is the minimum willingness to accept compensation for the risk.

The **certainty equivalent**, a related concept, is the guaranteed amount of money that an individual would view as equally desirable as a risky asset.

Read more about Risk Premium: Formal Definitions, Example, Finance

### Other articles related to "risk premium, risk, premium":

**Risk Premium**- Finance

... In finance, the

**risk premium**refers to the amount by which an asset's expected rate of return exceeds the

**risk**-free interest rate ... When measuring

**risk**, a common approach is to compare the

**risk**-free return on T-bills and the risky return on other investments (using the ex post return as a ... This excess expected return is known as the

**risk premium**...

... Another common pitfall is to adjust for

**risk**by adding a

**premium**to the discount rate ... mean that this is a valid approach to adjusting a net present value for

**risk**, although it can be a reasonable approximation in some specific cases ... may not work well can be seen from the following if some

**risk**is incurred resulting in some losses, then a discount rate in the NPV will reduce the impact of such losses below their true ...

... The country's

**risk premium**was affected by an armed rebellion in Chiapas, causing investors to be wary of investing their money in an unstable region ... Gregory Mankiw explains the country-

**risk**issues precipitating the crisis The EZLN's violent uprising in Chiapas in 1994 along with the assassination of presidential candidate Luis Donaldo Colosio ... reaction of investors to a higher perceived country

**risk premium**and paid out dollars ...

... relation to expected return and systematic

**risk**(beta) to show how the market must price individual securities in relation to their security

**risk**class ... The SML enables us to calculate the reward-to-

**risk**ratio for any security in relation to that of the overall market ... the expected rate of return for any security is deflated by its beta coefficient, the reward-to-

**risk**ratio for any individual security in the market is equal to the ...

1998, the United States Department of Transportation (DoT) introduced

**risk**analysis, a probabilistic approach to account for the uncertainty of the ... of the approaches of Net Present Value (NPV) analysis is to incorporate an inflation

**premium**and a project

**risk premium**into the discount rate (i) ... (i) =

**risk**free rate +

**risk premium**of the project +

**risk premium**of inflation ...

### Famous quotes containing the words premium and/or risk:

“In taking out an insurance policy one pays for it in dollars and cents, always at liberty to discontinue payments. If, however, woman’s *premium* is a husband, she pays for it with her name, her privacy, her self-respect, her very life, “until death doth part.””

—Emma Goldman (1869–1940)

“Any time you take a chance you better be sure the rewards are worth the *risk* because they can put you away just as fast for a ten dollar heist as they can for a million dollar job.”

—Stanley Kubrick (b. 1928)