How to Calculate Risk Premium: Definition & Formula


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question 1 of 3

Which of the following is the definition of risk premium?

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1. What is true of the payout from a risk-free rate?

2. Using the dividends-based approach, estimate the return on investment for an investment that has a dividend yield of 7% and a dividend growth of 1%.

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About This Quiz & Worksheet

Calculating risk premium is an important skill for people looking to invest. This quiz/worksheet combo will check your knowledge of this process, including important vocabulary words associated with the topic.

Quiz & Worksheet Goals

These assessments will quiz you on the following:

  • Defining risk premium
  • Identifying facts about risk-free rates
  • Practicing the dividends-based approach to calculating your return on investment
  • Using the earnings-based approach for calculating the return on investment
  • Finding the risk premium

Skills Practiced

This quiz and worksheet use the following skills:

  • Reading comprehension - ensure that you draw the most important information from the related lesson on calculating risk premium
  • Problem solving - use the dividends and earnings-based approaches to solve practice problems associated with risk premiums
  • Knowledge application - use your knowledge to answer questions about risk-free rates

Additional Learning

To learn more about calculating risk premiums, review the lesson How to Calculate Risk Premium: Definition & Formula. The lesson covers the following:

  • Defining terms like risk, risk premium, and risk-free payout
  • What variables are necessary to calculate risk premium
  • The steps necessary in earnings-based and dividends-based calculations