The Market risk premium Calculator helps you calculate the market risk premium effortlessly by simply inserting needed values. It is the additional return an investor receives from investing in a risky market portfolio rather than investing in a risk-free asset. It is basically the difference between the expected rate of return commensurate with the level of risk and the risk-free rate of return.
As we know, there is basically a difference between the two returns. Therefore, the formula for calculating the Market Risk Premium is:
| Market Risk Premium = Expected Rate of Return – Risk-Free Rate of Return |
Market Risk Premium Calculator
How to Calculate using Calculator?
To calculate the market risk premium, the user only has to provide the following data.
Expected Rate of Return
To calculate the expected rate of return, consider the following formula:
Expected Rate of Return = R1P1 + R2P2 + …. + RnPn
where R = Expected return for the given period.
P = Probability of return being achieved.
n = Number of periods.
Risk-Free Rate
The prevailing rate of return for government bonds / Treasury bonds with different maturities. The analyst/investor can choose the maturity so that their requirements for calculation/analysis purposes match.
