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Joe wants to calculate a forward-looking equity risk premium for U.S. equities. He has determined that the S&P 500 index has a current dividend yield
Joe wants to calculate a forward-looking equity risk premium for U.S. equities. He has determined that the S&P 500 index has a current dividend yield of 1.5 percent and that the year-ahead dividend yield based on forecasted dividends is 2.1 percent. For the last two years, earnings growth for the stocks comprising the S&P has been 8.5 percent. The consensus long-term earnings growth is 3.5 percent and the current 20-year U.S. government bond yield is 2.0 percent. The forward-looking equity risk premium for U.S. equities is closest to:
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