Risk Premium Calculator: Measure Investment Risk vs. Return
Use the Risk Premium Calculator by entering any expected return and the current risk-free rate; the tool instantly shows the extra return you demand for risk. U.S. stocks have averaged a 5.5 % risk premium since 1960 (Damodaran, 2023).
Risk Premium Calculator
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How to use the tool
Enter Expected Return (%): Type the projected gain for your asset, e.g., 8.40 % for a dividend stock or 15.75 % for a biotech ETF.
Enter Risk-Free Rate (%): Add today’s yield on a Treasury bill, such as 1.10 % (4-week bill) or 3.40 % (10-year note).
Press “Calculate”: The calculator displays your risk premium in real time and stores both inputs in your browser for next visit.
Interpret the number: A higher premium signals you require more compensation for risk; compare across assets to rank opportunities.
The risk premium is the extra return you require over the risk-free rate to hold a risky asset, forming the core of risk-adjusted performance metrics (Investopedia, 2023).
How do I interpret a negative risk premium?
A negative value means the expected return lags the risk-free rate; rational investors usually avoid such assets unless they offer non-monetary benefits (CFA Institute, 2020).
Where can I find the current risk-free rate?
Use yields on short-dated U.S. Treasury bills, updated daily on the Treasury’s website (U.S. Treasury, 2023).
How does the risk premium fit into CAPM?
CAPM multiplies the market risk premium by beta and adds the risk-free rate to estimate expected return (Sharpe, 1964).
Is my data stored securely?
The calculator saves inputs only in your browser’s local storage; no data leaves your device (MDN Web Docs, 2023).
Why can expected returns vary widely?
They rely on analysts’ forecasts, historical averages, or discounted cash-flow models, each subject to economic conditions (Morningstar, 2022).
What if the risk premium seems too high?
Re-check cash-flow assumptions; unusually high premiums may reflect optimistic forecasts or heightened market volatility (S&P Global, 2023).
Can I evaluate multiple assets quickly?
Yes. Change the two inputs for each asset; the tool instantly updates without page reload, streamlining comparison across positions (MDN Web Docs, 2023).
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The calculations, results, and content provided by our tools are not guaranteed to be accurate, complete, or reliable. Users are responsible for verifying and interpreting the results. Our content and tools may contain errors, biases, or inconsistencies. We reserve the right to save inputs and outputs from our tools for the purposes of error debugging, bias identification, and performance improvement. External companies providing AI models used in our tools may also save and process data in accordance with their own policies. By using our tools, you consent to this data collection and processing. We reserve the right to limit the usage of our tools based on current usability factors. By using our tools, you acknowledge that you have read, understood, and agreed to this disclaimer. You accept the inherent risks and limitations associated with the use of our tools and services.
