As many of you who have been readers of my posts know, I have a bit of fixation on the equity risk premium and have had several posts on the topic. The equity risk premium is what investors charge over and above what they can make on a riskfree investment to invest in equities, as a class. The reason for the fixation is simple. The equity risk premium is a central number in both corporate finance and valuation. In corporate finance, it determines the costs of equity and capital for firms, and by extension, their investment policies. It also drives the choice between debt and equity and determines whether the company should be accumulating cash or returning it to stockholders. In valuation, it is a key input to the value of any company.
Equity Risk Premiums: The 2011 Edition
Equity Risk Premiums: The 2011 Edition
Equity Risk Premiums: The 2011 Edition
As many of you who have been readers of my posts know, I have a bit of fixation on the equity risk premium and have had several posts on the topic. The equity risk premium is what investors charge over and above what they can make on a riskfree investment to invest in equities, as a class. The reason for the fixation is simple. The equity risk premium is a central number in both corporate finance and valuation. In corporate finance, it determines the costs of equity and capital for firms, and by extension, their investment policies. It also drives the choice between debt and equity and determines whether the company should be accumulating cash or returning it to stockholders. In valuation, it is a key input to the value of any company.