alleryStart learning →How is the equity risk premium defined?
AEquity return minus government bond return
BGovernment bond return minus equity return
CEquity return divided by bond return
DEquity return plus risk-free return
Answer & Solution
Correct answer: A. Equity return minus government bond return
It is the extra return from holding equities over government bonds, paid for bearing higher risk.
Keep practising Dividend Discount Model
Browse all Dividend Discount Model questions for CA Final, or explore more Strategicfinancialmanagement topics.
Related questions
What equity premium did a standard calibrated general equilibrium model predict?Who named the equity premium puzzle in their 1985 study?The equity premium puzzle starts from an observed US premium of roughly what size?As a firm's risk rises, what happens to its cost of capital?Bond yield plus risk premium adds a premium to which rate?A firm's combined cost of debt and equity capital is calculated as what?Why is a firm's cost of equity harder to find than its cost of debt?What does the cost of equity represent for a firm?