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.
Here is a screenshot of the equity risk premium template:
Enter your name and email in the form below and download the free template now!
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.
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.
For more resources, check out our business templates library to download numerous free Excel modeling, PowerPoint presentation and Word document templates.