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    Risk Premium

    Introduction

    The risk premium is defined as the return in addition to the risk-free return that an investment is anticipated to deliver.

    Understanding Risk Premium

    The risk premium is a reward to those investors who are willing to bear a higher risk than investors who prefer risk-free returns. However, your decision to bear a higher risk might not yield you high returns.

    Highlights of Risk Premium

    1. The risk premium is defined as the return, which is more than the risk-free return anticipated by an investment.

    2. This, in a way, is a form of rewarding investors willing to bear a higher risk.

    3. Your losses will be enhanced if the decision to take a higher risk backfires.

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