Question #85
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 32
Status: Unattempted
Question
Recent surveys of analysts report long-term earnings growth estimates as 5.5% and a forecasted dividend yield of 2.0% on the market index. At the time of the survey, the 20-year U.S. government bond yielded 4.8%. According to the Gordon growth model, what is the equity risk premium?
Answer Choices:
A. 2.7%
B. 0.4%
C. 7.5%
Explanation
Equity risk premium = 2.0% + 5.5% – 4.8% = 2.7%