Market Risk Premium (MRP)= (Expected rate of return)- (Risk-free rate)
Posted 01-02-2023 at 06:44 AM by IncSecvolt
For example, the expected [URL="http://bit.ly/3vtH021"]return on stocks[/URL] is 10% while that on bonds is 2.5%.
Putting these figures in the formula, we get the following equation: MRP= Return rate on stocks/(Return rate on bonds) = 10%-2.5%
MRP = 7.5%, and is equal to the risk premium on stocks + the return on bonds
Putting these figures in the formula, we get the following equation: MRP= Return rate on stocks/(Return rate on bonds) = 10%-2.5%
MRP = 7.5%, and is equal to the risk premium on stocks + the return on bonds
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