Market risk premium is needed to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset.

Market Risk Premium

The higher return an investor foresees from investing in a market portfolio with associated risks as opposed to choosing completely safe assets.

Risky Asset

An asset that carries a higher degree of risk of loss, but also offers a higher potential return.

Risk-free Asset

An investment with zero risk of financial loss, theoretically providing guaranteed returns, such as government bonds.