Risk premium
The extra return demanded for holding a riskier asset over a low-risk benchmark.
Plain languagePractical exampleConnected reading
01
What is it?
The extra return demanded for holding a riskier asset over a low-risk benchmark.
02
Why does it matter?
It is a core input into funding costs, discount rates and asset pricing.
03
How should it be read?
Match maturity, currency and the type of risk being compared.
04
Common mistake
Using every risk premium as a synonym for CDS.
A simple example
A corporate bond yielding 250 basis points over government debt may embed credit and liquidity premia.