The market or equity risk premium can be estimated by computing the historical average excess return on the market portfolio.

Question

Quizplus · Accepted Answer

The market or equity risk premium is usually estimated using the historical average excess return on the market portfolio. By subtracting the risk-free rate from the average market return, one can calculate the market risk premium, which represents the additional return that investors demand for holding a risky asset, such as stocks, over the risk-free rate. Therefore, it is true that the market or equity risk premium can be estimated by computing the historical average excess return on the market portfolio.

The Market or Equity Risk Premium Can Be Estimated by Computing