market risk premium

Definition

MRP. The difference between the market return on a portfolio and the risk-free rate derived from Treasury bonds. In terms of the Capital Asset Pricing Model (CAPM), MRP is the slope of the Securitie Market Line (SML).

Use market risk premium in a sentence

The market risk premium that he was looking at if he were to boldly invest his money in the stock market was simply too great to him to warrant the risk.

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While they could earn two percent on treasury bonds, they knew they could earn about five percent in the market. That extra three percent of market risk premium was worth the risk.

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The amount of return (yield) that one receives for investing in a market asset that is above the yield returned from a riskless asset (i.e. short treasuries) is the market risk premium, and represents the compensation for the additional degree of risk.

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