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risk premium

noun — 2 senses

risk premium

noun
1

Business, Finance The return on investment in excess of the (theoretical) risk-free rate of return that an investment is expected to yield: the extra benefit that an investor either gets or hopes to get in exchange for taking a risk. (Often measured by proxy measures such as aggregate corporate earnings compared with interest rates on certain benchmark bonds that stand in for risk-free securities.)

  • The risk premium of equities can turn negative according to proxy measures, as has often occurred over the decades.
2

Business, Finance An increase in the interest rate of a bond or loan according to the financial risk.

  • The loan shark added another 10% as the risk premium for an especially dubious borrower.

Entry derived from the Wiktionary, under licence CC BY-SA 4.0 — list of authors.