The market risk premium (MRP) broadly describes the additional returns above the risk-free rate that investors require when putting a portfolio of assets at risk in the market. This would include the universe of investable assets, including stocks, bonds, real estate, and so on.<\/p>
The equity risk premium (ERP) looks more narrowly only at the excess returns of stocks over the risk-free rate. Because the market risk premium is broader and more diversified, the equity risk premium by itself tends to be larger.<\/p>" } } , { "@type": "Question", "name": "What Is the Historical Market Risk Premium?", "acceptedAnswer": { "@type": "Answer", "text": "
In the U.S., the market risk premium has hovered around 5.5% over the past decade. Historical risk premiums used in practice have been estimated to be as high as 12% and as low as 3%.<\/span><\/span><\/p>"
}
}
,
{
"@type": "Question",
"name": "What Is Used for the Risk-Free Rate When Measuring the Market Risk Premium?",
"acceptedAnswer": {
"@type": "Answer",
"text": " In the United States, the yield on government bonds, such as 2-year Treasuries, is the most often used risk-free rate of return.<\/p>"
}
}
]
} ] }
]