Equity premium financial definition of Equity premium. Equity premium finance term by the Free Online Dictionary.

Equity Risk Premium

The return that an investor expects over and above the risk-free rate of return in exchange for investing in common stock instead of U.S. Treasury bonds. The equity risk premium may be calculated as the return such a stock actually earns over a given period. For example, if the interest rate on a Treasury bond is 4% and the stock returns 9%, the equity risk premium is 5%. Whether or not this is worth the investment depends on the cost of the stock, the risk relative to other stocks with similar returns, and the investor's own risk aversion. The equity risk premium is also called simply the equity premium.

equity risk premium

The extra return expected from investments in common stocks compared to the return from U.S. Treasury securities.

Equity Risk Premium

What Does Equity Risk Premium Mean?

The return provided by an individual stock or the overall stock market in excess of the risk-free rate. This excess return compensates investors for taking on the relatively higher risk of the equity market. The size of the risk premium will vary as the risk in a particular stock, or in the stock market as a whole, changes; high-risk investments are compensated with a higher premium. Also referred to as the equity premium.

Investopedia explains Equity Risk Premium

The risk premium is the result of the risk-return trade-off, in which investors require a higher rate of return on riskier investments. The risk-free rate in the market often is quoted as the rate on longerterm U.S. government bonds, which are considered risk-free because of the unlikelihood that the government will default on its loans. Compare that with securities that offer no or little guarantees. Remember, companies regularly experience downturns and go out of business. If the return on a stock is 15% and the risk-free rate over the same period is 7%, the equity-risk premium is 8% for this stock over that period.

Related Terms:
• Equity
• Gordon Growth Model
• Premium
• Risk
• Risk-Return Trade-Off

Mentioned in	?		References in periodicals archive	?		Financial browser	?		Full browser	?
Real Rate of Return Treasury Bill	Coverage includes an introduction to modern asset pricing, the authors' new structural theory and its application to the equity premium puzzle, use of the structural theory to deal with an enlarged portfolio space that includes non-tradable assets, discussion of asset pricing problems including both bottom-up and the top-down investment methodologies, and the relationship of the portfolio insurance with option and consumption-based asset pricing models. Asset pricing; a structural theory and its applications by Reference & Research Book News Moreover, the ex-ante equity premium that they uncover is highly volatile, with values between 0. Asset Pricing Program Meeting by NBER Reporter Introduction Since Shiller (1982) and Mehra and Prescott (1985) questioned why the gap between the rates of returns from stocks and bonds is so large, the equity premium puzzle has attracted the attention of many economists. Rational beliefs or distorted beliefs: the equity premium puzzle and ... by Park, Cheolbeom / Southern Economic Journal	Equity Claim Equity collar equity commitment note Equity Contribution Agreement equity dividend equity financing Equity floor Equity Fund Equity Funding Equity Income Equity injection Equity Kicker Equity Linked Foreign Exchange Option equity loan Equity Market Equity Market Capitalization Equity Market Neutral equity method Equity Multiplier Equity Note equity of redemption Equity Option Equity Options equity participation Equity Participation Loan Equity premium equity REIT Equity Risk Premium Equity Security equity sharing loan equity stripping Equity Swap Equity Unit Investment Trust Equity Warrant Equity Withdrawal equity yield rate Equity-Indexed Annuity Equity-Linked Eurobond Equity-Linked Eurobonds Equity-Linked Policies Equity-Linked Policy Equityholders Equivalencia Equivalencia de rendimiento Equivalent Annual Annuity Equivalent annual benefit Equivalent Annual Cash Flow Equivalent Annual Cost Equivalent Bond Yield Equivalent loan Equivalent Taxable Yield	Equity Market Capitalization Equity market neutral Equity market neutral Equity Market Risk Premium Equity Marketing Hong Kong, Ltd. Equity Membership Candidate equity method equity model Equity Mortgage Equity Mortgage Equity Mortgage Equity Mortgage Equity Mortgage Equity multiplier Equity Multipliers Equity Non-Hedge equity note Equity Notes equity of redemption equity of redemption equity of redemption Equity Office Media Network Equity Office Properties Trust equity option Equity options equity participation Equity Participation Investment Program equity participation loan Equity Participation Loans Equity Participation Note Equity premium Equity premium puzzle Equity Premiums Equity Principal Audition Equity Providing Preferred Income Convertible Securities Equity Quantitative Trading Group Equity Real Estate Investment Trust Equity Real Estate Investment Trusts Equity REIT Equity REITs Equity Release Solicitors Alliance Equity Risk Management System Equity risk premium Equity risk premium Equity Risk Premiums Equity securities Equity securities Equity securities Equity securities Equity securities Equity security Equity security Equity security Equity security Equity security Equity Share Capital Equity Share Capital Equity Share Capital Equity Share Capital equity sharing loan Equity skimming

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Real Rate of Return
Treasury Bill

Coverage includes an introduction to modern asset pricing, the authors' new structural theory and its application to the equity premium puzzle, use of the structural theory to deal with an enlarged portfolio space that includes non-tradable assets, discussion of asset pricing problems including both bottom-up and the top-down investment methodologies, and the relationship of the portfolio insurance with option and consumption-based asset pricing models.

Asset pricing; a structural theory and its applications by Reference & Research Book News

Moreover, the ex-ante equity premium that they uncover is highly volatile, with values between 0.

Asset Pricing Program Meeting by NBER Reporter

Introduction Since Shiller (1982) and Mehra and Prescott (1985) questioned why the gap between the rates of returns from stocks and bonds is so large, the equity premium puzzle has attracted the attention of many economists.

Rational beliefs or distorted beliefs: the equity premium puzzle and ... by Park, Cheolbeom / Southern Economic Journal

Equity Claim

Equity collar

equity commitment note

Equity Contribution Agreement