Equity Risk Premium Template

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Equity Risk Premium Template

This equity risk premium template shows you how to calculate equity risk premium given the risk-free rate, beta of stock, and expected return on the market.

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Equity Risk Premium Template Screenshot

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Equity Risk Premium is the difference between returns on equity/individual stock and the risk-free rate of return. The risk-free rate of return, for example, can be benchmarked to longer-term government bonds assuming zero default risk by the government. It is the excess return a stock pays to the holder over and above the risk-free rate for the risk the holder is taking. It is the compensation to the investor for taking a higher level of risk and investing in equity rather than risk-free securities.

Calculating Equity Risk Premium

The Formula:

Equity Risk Premium (on the Market) = Rate of Return on the Stock Market − Risk-free Rate

Here, the rate of return on the market can be taken as the return on the concerned index of the relevant stock exchange – i.e., the Dow Jones Industrial Average in the United States. Often, the risk-free rate can be taken as the current rate on long-term government securities.

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Additional Resources

CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:

The Financial Modeling Certification

Analyst Certification FMVA® Program

CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:

The Financial Modeling Certification

Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.

 

Financial Analyst certification curriculum

 

A well rounded financial analyst possesses all of the above skills!

 

Additional Questions & Answers

CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.

In order to become a great financial analyst, here are some more questions and answers for you to discover:

 

Excel Tutorial

CFI is a global provider of financial modeling courses and of the FMVA Certification. CFI’s mission is to help all professionals improve their technical skills. If you are a student or looking for a career change, the CFI website has many free resources to help you jumpstart your Career in Finance. If you are seeking to improve your technical skills, check out some of our most popular courses. Below are some additional resources for you to further explore:

The Financial Modeling Certification

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