The risk premium is the return in excess of the risk-freerate of return that investors require to compensate them for the additional risk associated with a particular investment. It reflects the general principle that higher risk should be associated with the potential for higher returns. In finance, the concept is often applied in different contexts: 1. **Equity Risk Premium**: This is the additional return expected from investing in the stock market over arisk-free investment, such asgovernment bonds.
