- This topic has 3 replies, 2 voices, and was last updated 7 years ago by
.
-
Posts
-
in calculating capm,
is equity risk premium same as market risk premium ??
It depends on the exact wording of the question.
The market risk premium is the excess of the market return over the risk free rate.
Depending on the wording of the rest of the question, the equity risk premium may mean the same thing, or it may refer to the excess of the return on a particular share over the risk free rate (which depends on the beta of the share).
but so far in the exam question doesn’t both the terminologies refer to the same thing ?
either one of the term is used and it always indicated expected return minus risk free rate.
do u remember any exam questions that shows the obvious difference of both ?
I repeat – it depends on the exact wording used. (The excess of the market return over the risk free rate is certainly not the same as the excess of the return for a specific share over the risk free rate – unless of course the share has a beta of 1).
Presumably you asked your first question because of a problem with a specific exam question – in which case say which one. Otherwise, watch my free lectures.
- The topic ‘market risk premium’ is closed to new replies.