---
title: Risk Premium
description: Risk premium is the minimum incremental yield by which the expected return on a risky asset must exceed the known return on a risk-free asset in order to justify the risky asset.
---

[Realized 1031 Glossary of Terms ](https://www.realized1031.com/glossary)

# [Risk Premium](https://www.realized1031.com/glossary/risk-premium)

 Written by [The Realized Team](https://www.realized1031.com/glossary/author/the-realized-team) | Jun 22, 2022 12:00:00 PM

Risk premium is the minimum incremental [yield](https://www.realized1031.com/glossary/yield) by which the expected return on a risky asset must exceed the known return on a risk-free asset in order to induce an individual to hold the risky asset rather than the risk-free asset. The risk-free asset is typically thought of as a U.S. Treasury security with a maturity equal to the expected investment period. U.S. Treasuries produce a known return and, especially short-term Treasuries, are considered to have minimal risk.

As an example calculation, If an investor knows she can receive 3.0% on a government bond and a speculative investment is expected to return 8.0%, then the risk premium is 5.0%. The investor must then decide if the 5.0% “excess return” is enough to justify the increased level of risk. See [Risk Adjusted Returns](https://www.realized1031.com/glossary/risk-adjustment-returns).

[View full post](https://www.realized1031.com/glossary/risk-premium)

```json
{
  "@context" : "http://schema.org",
  "@type" : "BlogPosting",
  "author" : {
    "@type" : "Person",
    "name" : "The Realized Team"
  },
  "dateModified" : "2022-06-22T15:35:06.400Z",
  "datePublished" : "2022-06-22T12:00:00Z",
  "headline" : "Risk Premium",
  "image" : {
    "@type" : "ImageObject",
    "height" : 627,
    "url" : "https://cdn2.hubspot.net/hubfs/733513/social-suggested-images/Realized_Glossary_Graphic-2.jpg",
    "width" : 1200
  },
  "mainEntityOfPage" : "https://www.realized1031.com/glossary/risk-premium",
  "publisher" : {
    "@type" : "Organization",
    "logo" : {
      "@type" : "ImageObject",
      "height" : 60.0,
      "url" : "http://www.realized1031.com/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black-No-Margin-296x60-AMP.png",
      "width" : 296.0
    },
    "name" : "Glossary of Terms"
  }
}
```