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What is Market Risk Premium?

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Wiki User
September 15, 2010 4:42AM

It is the return you are expected to make by putting your money into Equity(stocks) Over what the current Risk free rate is.

For example the Risk free rate (30 YR T-Bonds) is at 3.8% right now, and I think the S&P 500 is going to return around 8%, so 8 - 3.8 = 4.2% Market Risk Premium.

It depends on how you calculate future expected returns and all firms calculate it in different ways.