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https://www.calculatinginvestor.com/2011/09/03/the-equity-risk-premium-part1/ Mon, 28 Nov 2011 16:07:43 +0000 hourly 1 https://wordpress.org/?v=5.8.9 https://www.calculatinginvestor.com/2011/09/03/the-equity-risk-premium-part1/#comment-115667 Mon, 28 Nov 2011 16:07:43 +0000 http://www.calculatinginvestor.com/?p=3729#comment-115667 Re Equity Risk premium – and the risk-free rate. Since the CAPM (and Markowitz’s Portfolio Theory) are single period models, the risk free rate should be the rate that is certain over the investment period, so if one is using monthly returns it should be the expected one-month return i.e. one month TB rates. If one is using say ten-years of historical equity monthly returns, it would be better to work with the premium over the monthly risk-free rates since the average of the one-month returns would not necessarily be a good proxy for the expected risk-free returns each period.

]]> https://www.calculatinginvestor.com/2011/09/03/the-equity-risk-premium-part1/#comment-98878 Sat, 03 Sep 2011 23:07:43 +0000 http://www.calculatinginvestor.com/?p=3729#comment-98878 An especially timely series of posts given all the questions surrounding valuation with the yield on the S&P 500 exceeding the yield on the 10 year Treasury.

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