Market Risk Premium (MRP)
Also called MRP
The Market Risk Premium is the additional return investors expect for taking on the risk of investing in the stock market instead of a risk-free security.
Formula
Example
If the current Risk-Free Rate is 5% and the 5-year S&P average return (Market Return) is 10%, the Market Risk Premium would be 5%.
In the room
The MRP is the term beta scales in CAPM, so understanding it makes the whole formula intuitive rather than memorized. It's simply the extra return investors demand for taking market risk over a risk-free asset.