Risk Premium
Risk Premium Meaning:
In finance, the expected return above the risk-free alternative.
In finance, the expected return above the risk-free alternative.
United States Treasury bills are widely regarded as a risk-free investment, as they are backed by the United States Government. Other, riskier, investments can be expected to give a higher expected rate of return than treasuries, as other investments carry a risk that they will return nothing at all. The difference between the two expected rates of return can therefore be said to be a risk premium.