Business and Personal Finance Dictionary

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• RISK PREMIUM
  
  A risk premium is one way to measure the risk you'd take in buying a specific investment. Some analysts define risk premium as the difference between the current risk-free return-the yield on a 13-week US Treasury bill-and the total return on the investment you're considering. Other measures of risk premium, which are applied specifically to stocks, are a stock's beta, or the volatility of that stock in relation to the stock market as a whole, and a stock's alpha, which is based on an evaluation of the stock's intrinsic value. Similarly, the higher interest rates that bond issuers typically offer on riskier bonds may be considered a risk premium, since the higher rate, and potentially greater return, is a way to compensate for the greater risk.
  
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