Which of the following statements regarding estimating an equity premium is false?
A)The S&P 500 Index is commonly used to proxy for the market portfolio when using historical data to estimate an equity premium.
B)If you are evaluating long-term projects, you should use the yield on a long-term Treasury bond as the risk-free rate in the equity premium equation.
C)You should estimate an equity premium for each project you are evaluating.
D)All of the above are true statements.

Question

Quizplus · Accepted Answer

Estimating an equity premium for each individual project is not typically done. Instead, a single equity premium is often used for all projects within a given market or for a specific company, reflecting the overall extra return investors expect for taking on the higher risk of investing in equities over risk-free securities.

Which of the Following Statements Regarding Estimating an Equity Premium