Economics Risk And Return Questions Medium
The risk premium is the additional return or compensation that an investor expects to receive for taking on additional risk when investing in a particular asset or security. It is the excess return over the risk-free rate of return that investors demand as compensation for bearing the uncertainty and potential losses associated with investing in a risky asset. The risk premium is a key concept in finance and is used to assess the attractiveness of different investment opportunities. It reflects the trade-off between risk and return, where higher-risk investments are expected to provide higher returns to compensate for the increased uncertainty and potential losses. The risk premium can vary depending on factors such as the level of risk aversion among investors, market conditions, and the specific characteristics of the investment being considered.