Risk premium

The extra return investors demand for holding risky assets such as equities, compared with the return they get on risk-free assets such as cash or government bonds. The risk premium needs to reflect two factors; the potential for absolute loss (if the company goes bust or defaults on a debt) and the volatility of the asset (that is, the variability of its price). In a crisis, risky assets plunge in price, meaning that investors may have to sell them at a loss.