An article in the Economist in 2016 noted that since 2000, an investor in the United Kingdom would have earned a higher return from buying British government bonds than from buying stock issued by British firms. The article concluded: “There has been a negative equity risk premium this century.”
a. Briefly explain how the author arrived at this conclusion. Be sure your answer includes an explanation of what the equity risk premium is.
b. Why might the equity risk premium in the United Kingdom have been negative during this period?