How to calculate Equity Risk Premium?

Modified on Tue, 19 Jun 2018 at 12:20 PM

The equity risk premium is a long-term prediction of how much the stock market will outperform risk-free debt instruments. In this article, we take a deeper look at the assumptions and validity of the risk premium by looking at the calculation process in action with actual data. Recall the three steps of calculating the risk premium: (1) estimate the expected return on stocks, (2) estimate the expected return on risk-free bonds and (3) subtract the difference to get the equity risk premium. (For background reading, see The Equity-Risk Premium: More Risk For Higher Returns.)


Source : Investopedia

Was this article helpful?

That’s Great!

Thank you for your feedback

Sorry! We couldn't be helpful

Thank you for your feedback

Let us know how can we improve this article!

Select atleast one of the reasons
CAPTCHA verification is required.

Feedback sent

We appreciate your effort and will try to fix the article