A decline in investors' equity risk premium should, everything else the same, _____ future stock prices.

Question

Quizplus · Accepted Answer

A decline in the equity risk premium, which is the extra return investors require to hold stocks over risk-free assets, implies that investors are requiring less additional return for taking on equity risk. This lower required return makes stocks more attractive relative to bonds, leading to higher stock prices as investors are willing to pay more for stocks.

A Decline in Investors' Equity Risk Premium Should, Everything Else