Equity Risk Premium
The extra return investors demand for holding equities over a risk-free government bond. Two schools: the historical average of realised excess returns over a long window, and the implied premium backed out of the current index level and expected cash flows. They can differ by several percentage points, which moves a valuation enormously, so state which one you used and why.
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This term comes up constantly in valuation interviews and on the desk.
DCF interview questions guideRelated Valuation terms
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