Chapter 9 Risk and return 3 The difference between these two returns can be interpreted as a measure of the excess return on the average risky asset. We call this the“ excess” return since it is the additional return we earn by moving from a relatively risk-free investment to a risky one. Because it can be interpreted as a reward for bearing risk, we will call it risk premium. Risk premium is the excess return required from an investment in a risky asset over a risk-free investment So the first lesson is on average risky assets earn a risk premium.Chapter 9 Risk and return The difference between these two returns can be interpreted as a measure of the excess return on the average risky asset. We call this the “excess” return since it is the additional return we earn by moving from a relatively risk-free investment to a risky one. Because it can be interpreted as a reward for bearing risk, we will call it risk premium. Risk premium is the excess return required from an investment in a risky asset over a risk-free investment. So the first lesson is on average risky assets earn a risk premium