Equity Risk Premium - the Equity Risk Premium is the extra return that a particular stock or the overall market must provide over the rate of treasury bills to counter act the market risk. The reason for this premium stems from the risk free trade off of risky funds who entice buyers by paying higher dividends... The fore this extra premium will compensate for this factor. The size or the premium will vary as the risk of the entire market or the stock in question changes. Therefore high-risk investments are compensated with higher premiums Equity Risk Premiums are also commonly referred to as Equity Premiums.