The market risk premium is measured by the market return less risk-free rate. You can calculate the market risk premium as market risk premium is equal to the expected return of the market minus the risk-free rate.
maturity risk premium
Banks are currently using 8% market risk premium. Data as of Feb, 2013.
When one has market risk premium he/she is willing to take an financial risk. The risk premium is how much value stocks should return over a risk-free investment. Stocks are considered a higher financial risk (and possible a faster gain) opposed to, for instance, bonds.
Maturity Risk Premium (MPR)
If the required rate of return is 11 the risk free rate is 7 and the market risk premium is 4 If the market risk premium increased to 6 percent what would happen to the stocks required rate of return?
Risk premium = Company's risk (standard deviation of the historical stock returns of the market as a whole) - Risk-free rate of return (standard deviation of the historical treasury bonds' returns) - Inflation
yes it is a bigger risk.
The rate of return on a security, in this case the debt, is defined by rd = rRF + Liquidity Premium + Maturity Risk Premium + Default Risk Premium Thus increasing the risk free rate (rRf) should increase the cost of debt. Hopefully that answers your question...