financial risk premium

jayjango | 15:36 Fri 18th May 2007 | Business & Finance

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how to calculate

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There isn't a simple answer. If you are using CAPM the premium is [ beta x (Rm - Rf)] where Rm is the market rate, Rf is the Risk Free rate and beta is a measure of systematic/idiosyncratic risk for a security. So Total required return is Rf plus premium.

If you know the Total return (Tr) then the premium is just Tr - Tf. The risk free rate is usually taken as the return on a government bond/bill of similar maturity to the security in question.

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