How is ERP equity risk premium calculated?

The equity risk premium is calculated as the difference between the estimated real return on stocks and the estimated real return on safe bonds—that is, by subtracting the risk-free return from the expected asset return (the model makes a key assumption that current valuation multiples are roughly correct).

How is market risk premium calculated?

The market risk premium can be calculated by subtracting the risk-free rate from the expected equity market return, providing a quantitative measure of the extra return demanded by market participants for the increased risk.

Who produces CapIQ?

Capital IQ is a database produced by Standard & Poor’s that can be used to find detailed company financial information for U.S. and international public and private companies and investment firms.

Is equity risk premium the same as market risk premium?

The market risk premium is the additional return that’s expected on an index or portfolio of investments above the given risk-free rate. The equity risk premium pertains only to stocks and represents the expected return of a stock above the risk-free rate.

How do you find a company’s risk-free rate?

The value of a risk-free rate is calculated by subtracting the current inflation rate from the total yield of the treasury bond matching the investment duration. For example, the Treasury Bond yields 2\% for 10 years. Then, the investor would need to consider 2\% as the risk-free rate of return.

Does Capiq have private companies?

S&P Capital IQ (see access details) allows you to screen for private companies, including those with financial statements. Then, enter private company to select it as a company type; or enter private companies with financial statements to select it as a company type.

Where Can Capital IQ users find information on sector performance?

The Market Analysis page provides a quick analysis on the entire industry, divided into ten major sectors, as well as in-depth research on selected sectors.