The market risk premium is the additional return that investors require to invest in the market portfolio rather than treasury bills.
What is a market risk premium?
- The market risk premium (MRP) is the difference between a market portfolio's projected return and the risk-free rate.
- The slope of the security market line (SML), a graphical representation of the capital asset pricing model, equals the market risk premium (CAPM).
- The market risk premium is the extra return required by investors to invest in a market portfolio rather than treasury bills.
- The distinction between a market-risk premium and an equity-risk premium is based on scope.
- The market risk premium is the excess return on an index or portfolio of investments over the risk-free rate.
Therefore, the market risk premium is the additional return that investors require to invest in the market portfolio rather than treasury bills.
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