Question
You are estimating the expected market risk premium. Explain the historical based approach and the forward-looking approach (implied expected market risk premium). What is the
You are estimating the expected market risk premium. Explain the historical based approach and the forward-looking approach (implied expected market risk premium). What is the trade-off for the historical approach of using only the last 15 years to calculate it and using the last 70 years to calculate it? Assume the following and calculate the expected market risk premium: the risk-free rate is 5.00%, the SP500 index is 4000. The average dividend yield on the SP500 is 2.0%. The expected growth rate of dividends is 8%. What is the expected market risk premium?
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