Question #3
Reading: Reading 17 Cost of Capital - Advanced Topics
PDF File: Reading 17 Cost of Capital - Advanced Topics.pdf
Page: 1
Status: Unattempted
Correct Answer: B
Question
The equity risk premium is the difference between:
Answer Choices:
A. estimated equity returns and estimated bond returns
B. the estimated equity return and the risk-free return
C. the required equity return and the risk-free return
Explanation
The equity risk premium reflects the return in excess of the risk-free rate that investors
require for holding stocks. It is derived by subtracting the risk-free return from the
required return.