Risk Premium Calculator

How to Use the Calculator

1. Enter the Expected Return percentage in the first input field. This is the anticipated return on your investment.
2. Enter the Risk-Free Rate percentage in the second input field. This is the return you could expect from an investment with zero risk, such as a government bond.
3. Click the Calculate button to compute the risk premium.
4. The result will be displayed as the Risk Premium, which is the additional return you expect to receive for taking on additional risk.

Understanding Risk Premium

Risk premium is the difference between the expected return on an investment and the risk-free rate. It represents the additional return investors demand for taking on additional risk. A higher risk premium indicates that investors are willing to take on more risk for a potentially higher return.

Example

If the expected return on an investment is 12% and the risk-free rate is 3%, the risk premium would be 9% (12% - 3%). This means investors are willing to accept a 9% higher return for taking on the additional risk of this investment compared to a risk-free investment.