--%>

Historical return on stock market and risk-free rate

The market risk premium is difference among the historical return upon the stock market and the risk-free rate, for yearly. Why is this negative for some years?

E

Expert

Verified

The market risk premium (needed return) is not the difference among the historical return of the stock market and that of fixed-income. For illustration, the historical return of stock market over fixed-income in the United States fluctuates among 3 and 15 percent according to the time period referenced. The needed equity premium is the additional return an investor needs of the shares above the risk-free fixed-income. This does not have similar value for each investor and this is not observable. Thus, we cannot say this is a characteristic parameter of international or national economy.

   Related Questions in Corporate Finance

  • Q : Calculating the Cost of Equity You are

    You are an analyst in the financial division of Flipper Industries (FI) which has a beta of 1.80 (you are risk-philic, so you enjoy the thrill of working somewhere so risky). The company just paid a dividend of $1 and dividends are expected to grow at 5% per year. The

  • Q : Is the given affirmation of an

    Is the given affirmation of an accountancy expert true? “There valuation criterion that reflects the value of the shares of a company in the most accurate way is based on the amount of the equity of shareholder of its balance sheet. Stating that the value of sha

  • Q : Describe nominal gross domestic product

    Nominal gross domestic product: If GDP of a particular year is estimated on the base of price of similar year, it is termed as nominal GDP.

  • Q : Price per share for Corporation For XYZ

    For XYZ Corporation debt-to-equity ratio, marginal tax rate, and dividend payout ratio are all of 40%. The cost of debt is 10%. Cambria contains 1 million shares of common stock, and $25 million in long-term bonds. Its dividend is $1 per share. Determine the EBIT and

  • Q : Discounting Free Cash Flow or

    Which of these two ways is better: discounting the Free Cash Flow or discounting the Equity Cash Flow?

  • Q : Problem on Bond Price Kevin is

    Kevin is interested in buying a 5-year bond which pays a coupon of 10 % on a semi-annual basis. The present market rate for similar bonds is 8.8 %. What must be the present price of this bond? (Round to the closest dollar.) (a) $1,048  (b) $965  (c) $1,099&n

  • Q : How could we project exchange rates How

    How could we project exchange rates within order to be capable to forecast exchange differences?

  • Q : Define the term Stock Market crash

    Stock Market Crash was responsible for the Great Depression. Middle class families lost all their savings as they had gambled the market on margin.Those banks which were under the loan ofbrokers’ started removing money out of the savings account

  • Q : How could prestigious investment bank

    I have a doubt about the Enron case. How could this prestigious investment bank advice investing while the quotations of the shares were falling?

  • Q : Overview of capital market efficiency

    Provide a brief overview of Capital Market Efficiency?