Portfolio Theory
Market Risk Premium
Definition
What is Market Risk Premium?
The expected return of the broad market above the risk-free rate.
Example in practice
How This Looks in Practice
If expected market return is 15% and the risk-free rate is 10%, the premium is 5%.
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Related Terms
Portfolio Theory
Capital Asset Pricing Model
A model linking expected return to the risk-free rate, market risk premium, and an asset's beta.
Portfolio TheorySecurity Market Line
A line showing the CAPM relationship between expected return and beta.
Portfolio TheoryEfficient Frontier
The set of portfolios offering the highest expected return for each level of risk under stated assumptions.
Fraud & ScamsPonzi Scheme
A fraud that pays earlier participants using money from newer participants rather than genuine investment profits.