Calculate the risk premium of your investments. Enter the returns of both your risk-free asset and your investment return.
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Risk Premium Formula
The following formula is used to calculate a risk premium.
RP = RF-RA
- Where Ra is the return on a risk-free asset
- RF is the return on actual investment
To calculate the risk premium, subtract the risk-free return from the actual return.
Risk Premium Definition
A risk premium is the difference in returns between a risk-free asset and another asset class or individual asset.
How to calculate Risk Premium?
How to calculate risk premium?
- First, determine the return of your asset class.
Measure the percentage return of the asset being analyzed.
- Next, determine the return of a risk free asset.
For example a savings account that yields 1% is the
- Finally calculate the risk premium.
Using the formula and returns determined in steps 1 and 2, calculate the risk premium.
FAQ
A risk premium is the difference in returns between a risk free asset and another asset class or individual asset.