The Market Risk Premium

This video discusses the market risk premium.

The market risk premium is the amount by which the expected market return exceeds the risk-free rate. Thus, the market risk premium is the excess return of the market. The market risk premium is calculated as follows:

market risk premium = expected market return - risk-free rate

Thus, if the expected market return is 11% and the risk-free rate is 2%, the market risk premium would be 9%.

The market risk premium is the reward that investors expect to earn for holding a portfolio with a beta of one (the market portfolio).

The market risk premium is important because we can use it to calculate the risk premium for an individual security with the Capital Asset Pricing Model. The market risk premium is actually the slope of the Security Market Line (the Security Market Line is the line that plots the Capital Asset Pricing Model).—
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[ivornworrell]

*Thank you very much for this video on advanced finance sir, I have learnt much from it.*

[chubb]

Thank you for the lesson, Sir. It is very helpful for catching-up my master’s degree

[noushrab]

Hello. Thank you for the great content.

A quick question:
If I am calculating CAPM for a particular country (for example Zambia), should I use the market return of Zambia itself or the market return of an index like S&P500? Thank you so much.

[faisalnasimi]

So, when calculating CAPM for a specific stock do you use the expected return of the market or the expected return of that individual stock?

[levsandler]

Why market premium risk goes up while stock market crush?