Market risk premium

By | 2017-09-13T15:00:34+00:00 13th September 2017|

The market risk premium is the expected return on a market portfolio minus the risk-free rate. This sum is used in the Capital Asset Pricing Model. The market risk premium assesses the amount of return an investor requires to be invested in a stock market relative to a safe, “risk free” investment. The historical market risk premium will be the same for all investors since the value is based on what actually happened. Any required and expected future market premiums used as an assumption- will differ from investor to investor based on risk tolerance and investing styles.