--%>
Assignment Help - homework help

Shall we use the arithmetic mean or the geometric one

The market risk premium is the difference between the historical return on the stock market and the return on bonds. But how many years does “historical” imply? Shall we use the arithmetic mean or the geometric one?

E

Expert

Verified

The risk premium that is relevant for the calculation of the required return to shares is one explained in A78 and this does not have much to do either along with the historic one or with the implicit or expected ones.

   Related Questions in Corporate Finance

  • Q : Assessing market expectations using CAPM

    Assume that the risk-free rate is 1% and the expected market return is 9%. You are considering purchasing Super Soft stock, which currently sells for $100 a share and will pay its next (annual) dividend of $1.00 exactly one year from today. Super Soft is considered to

    		•
  • Q : Did you see Vueling case Did you notice

    Did you notice the Vueling case? How is this possible that an investment bank sets the objective price of its shares in €2.50 per share upon the 2nd of October, 2007, just after replacing Vueling shares at €31 per share in J

    		•
  • Q : Is there any optimal capital structure

    Is there any optimal capital structure?

    		•
  • 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 : Define Project Financing Project

    Project Financing: It is the procedure of determining how to go around obtaining the resources needed in managing the costs related with the launch and continuing operation of a project. Whereas this procedure sometimes comprises the re-allocation of

    		•
  • Q : Market for Corporate Bonds Write some

    Write some point regarding Market for Corporate Bonds.

    		•
  • 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 : What impacts have on value of a

    What impacts have on the value of a business of high inflation?

    		•
  • Q : Strategy of Bull Spread State when

    State when market is expected to go up then what is the Strategy of Bull Spread?

    		•
  • Q : Benefits of working capital requirement

    Benefits of working capital requirement estimation: • Helps to judge the efficiency of utilization of working capital in generation of sales • Cost of capital aspect

    		•