what is a risk premium 
a risk premium is the investment return an asset is expected to yield in excess of the risk free rate of return an asset s risk premium is a form of compensation for investors it represents payment to investors for tolerating the extra risk in a given investment over that of a risk free asset for example high quality bonds issued by established corporations earning large profits typically come with little default risk therefore these bonds pay a lower interest rate than bonds issued by less established companies with uncertain profitability and a higher risk of default the higher interest rates these less established companies must pay is how investors are compensated for their higher tolerance of risk investopedia michela buttignol