FINANCIAL CHRONICLE™
Dear Reader,

Registration with the Sri Lanka FINANCIAL CHRONICLE™️ would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.


Thank You
FINANCIAL CHRONICLE™️
www.srilankachronicle.com


Join the forum, it's quick and easy

FINANCIAL CHRONICLE™
Dear Reader,

Registration with the Sri Lanka FINANCIAL CHRONICLE™️ would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.


Thank You
FINANCIAL CHRONICLE™️
www.srilankachronicle.com
FINANCIAL CHRONICLE™
Would you like to react to this message? Create an account in a few clicks or log in to continue.
FINANCIAL CHRONICLE™

Encyclopedia of Latest news, reviews, discussions and analysis of stock market and investment opportunities in Sri Lanka

Click Link to get instant AI answers to all business queries.
Click Link to find latest Economic Outlook of Sri Lanka
Click Link to view latest Research and Analysis of the key Sectors and Industries of Sri Lanka
Worried about Paying Taxes? Click Link to find answers to all your Tax related matters
Do you have a legal issues? Find instant answers to all Sri Lanka Legal queries. Click Link
Latest images

Latest topics

» Latest Financial Status and Future Outlook of SMB Finance PLC
by ChatGPT Yesterday at 11:15 pm

» Latest Financial Status and Future Outlook of Overseas Realty PLC
by ChatGPT Yesterday at 11:00 pm

» Latest Financial Status and Future Outlook of Merchant Bank of Sri Lanka & Finance PLC
by ChatGPT Yesterday at 10:55 pm

» McDonald’s අපේ නෙමෙයි අපේ බෝස්ගේ – අබාන්ස් කියයි
by ChooBoy Yesterday at 10:19 am

» AI Assistance for Stock Market Research and Analysis
by ChatGPT Yesterday at 7:12 am

» Comparative Analysis of the Insurance Sector
by God Father Tue Mar 26, 2024 11:46 pm

» Sri Lanka: Why Pay Exorbitant Taxes?
by ChatGPT Tue Mar 26, 2024 10:52 pm

» LANKA CREDIT AND BUSINESS FINANCE PLC (LCBF.N0000)
by K.R Tue Mar 26, 2024 3:15 pm

» CENTRAL INDUSTRIES PLC (CIND.N0000)
by D.G.Dayaratne Tue Mar 26, 2024 9:11 am

» SIYAPATHA FINANACE PLC (SLFL.N0000)
by ChatGPT Tue Mar 26, 2024 7:58 am

» FINANCE AND LEASING SECTOR
by ChatGPT Mon Mar 25, 2024 6:45 am

» LOLC FINANCE PLC (LOFC.N0000)
by ChatGPT Mon Mar 25, 2024 6:36 am

» CIC HOLDINGS PLC (CIC.N0000)
by ChatGPT Mon Mar 25, 2024 6:18 am

» UNION ASSURANCE PLC (UAL.N0000)
by ChatGPT Mon Mar 25, 2024 6:15 am

» First Capital Holdings PLC: Current Financial performance and future outlook
by God Father Sun Mar 24, 2024 10:58 pm

» LankaBizz: Sri Lanka's First ever Artificially Intelligent (AI) Business and Research Assistant
by God Father Sun Mar 24, 2024 7:27 am

» HOTEL AND TRAVEL SECTOR
by ErangaDS Wed Mar 20, 2024 7:22 am

» CIC Holdings Good Times Ahead
by ashan silva Mon Mar 18, 2024 11:00 am

» EPF Fund keep eye on low P/E Shares
by K.R Mon Mar 18, 2024 8:45 am

» SINS - the Tailwind effects of a crisis hit Economy
by Hawk Eye Mon Mar 18, 2024 8:37 am

» Ceylon cold stores
by Hawk Eye Mon Mar 18, 2024 8:25 am

» Asha securities Provide buy signal for CIC
by ddrperera Fri Mar 15, 2024 1:10 am

» CSE ready for another Downtrend?
by D.G.Dayaratne Thu Mar 14, 2024 11:24 am

» LankaLAW Forum : Sri Lanka’s #1 Discussion Platform for Legal Questions and Answers
by blindhog Thu Mar 14, 2024 9:14 am

» Sri Lanka poised to benefit from demand surge for ‘non-China origin’ graphite
by samaritan Wed Mar 13, 2024 1:31 pm

LISTED COMPANIES

Submit Post
ශ්‍රී ලංකා මූල්‍ය වංශකථාව - සිංහල
Submit Post


CONATCT US


Send your suggestions and comments

* - required fields

Read FINANCIAL CHRONICLE™ Disclaimer



EXPERT CHRONICLE™

ECONOMIC CHRONICLE

GROSS DOMESTIC PRODUCT (GDP)



CHRONICLE™ YouTube

Disclaimer
FINANCIAL CHRONICLE™ Disclaimer

The information contained in this FINANCIAL CHRONICLE™ have been submitted by third parties directly without any verification by us. The information available in this forum is not researched or purported to be complete description of the subject matter referred to herein. We do not under any circumstances whatsoever guarantee the accuracy and completeness information contained herein. FINANCIAL CHRONICLE™ its blogs, forums, domains, subdomains and/or its affiliates and/or its web masters, administrators or moderators shall not in any way be responsible or liable for loss or damage which any person or party may sustain or incur by relying on the contents of this report and acting directly or indirectly in any manner whatsoever. Trading or investing in stocks & commodities is a high risk activity. Any action you choose to take in the markets is totally your own responsibility, FINANCIAL CHRONICLE™ blogs, forums, domains, subdomains and/or its affiliates and/or its web masters, administrators or moderators shall not be liable for any, direct or indirect, consequential or incidental damages or loss arising out of the use of this information. The information on this website is neither an offer to sell nor solicitation to buy any of the securities mentioned herein. The writers may or may not be trading in the securities mentioned.

Further the writers and users shall not induce or attempt to induce another person to trade in securities using this platform (a) by making or publishing any statement or by making any forecast that he knows to be misleading, false or deceptive; (b) by any dishonest concealment of material facts; (c) by the reckless making or publishing, dishonestly or otherwise of any statement or forecast that is misleading, false or deceptive; or (d) by recording or storing in, or by means of, any mechanical, electronic or other device, information that he knows to be false or misleading in a material particular. Any action writers and users take in respect of (a),(b),(c) and (d) above shall be their own responsibility, FINANCIAL CHRONICLE™ its blogs, forums, domains, subdomains and/or its affiliates and/or its web masters, administrators or moderators shall not be liable for any, direct or indirect, consequential or incidental violation of securities laws of any country, damages or loss arising out of the use of this information.


AI Live Chat

You are not connected. Please login or register

How does equity risk premium work

Go down  Message [Page 1 of 1]

1How does equity risk premium work Empty How does equity risk premium work Sat Sep 26, 2020 1:20 pm

nobileprize55


Equity Analytic
Equity Analytic

How does equity risk premium work
Shares are generally considered to be a high risk investment. Investing in the stock market comes with certain risks, but it also has the potential for significant gains. Therefore, as a general rule, investors are compensated at higher premiums when they invest in the stock market. Whatever return you earn on a risk-free investment like a US Treasury (T-bill) or bond, it is called a equity risk premium. 
Gold Signals
 
Equity risk premium is based on the notion of trade-off between risk and reward. He is a forward-looking character, and as such, ALQST is theoretical. But there is no real way to know how much an investor will get, as no one can actually say how well the stock or stock market will perform in the future. Instead, the equity risk premium is an estimate as a backward measure. It monitors the performance of the government securities and bonds market over a specific period of time and uses this historical performance to achieve future returns. Estimates vary widely depending on the time frame and method of calculation.
 
Gold Signals
 
 Because equity risk premiums require the use of historical returns, it is not an exact science, and therefore it is not completely accurate.
To calculate the equity risk premium, we can start with the Capital Asset Pricing Model (CAPM), which is usually written as Ra = Rf + βa (Rm - Rf), where:
 
Ra = the expected return on an investment in an investment or a capital investment of some kind
Rf = Risk Free Rate of Return
βa = beta of A.
Rm = expected market return
 
Therefore, the equation for equity risk premium is a simple restatement of CAPM which can be written as follows: Equity risk premium = Ra - Rf = βa (Rm - Rf)
[rtl]Forex Signals[/rtl]
 
If we are talking simply about the stock market (a = m), then Ra = Rm. Beta is a measure of a stock's volatility - or risk - versus market volatility. Market volatility is conventionally determined as 1, so if a = m, then βa = βm = 1. Rm - Rf is known as market premium, and Ra - Rf is the risk premium. If a is a capital investment then Ra - Rf is the equity risk premium. If a = m, then the market premium and equity risk premium are the same.
Gold Signals
 
According to some economists, this is not a generalizable concept although some markets in certain time periods may exhibit a significant equity risk premium. They argue that an excessive focus on specific cases has made statistical privacy appear to be an economic law. Many exchanges have gone bankrupt over the years, so focusing on the historically exceptional US market may distort the picture. This focus is known as a survival bias.
Gold Signals
 
Most economists agree, although the concept of equity risk premium is correct. In the long term, the markets more than compensate investors for taking greater risk of investing in stocks. How exactly this premium is calculated is disputed. A survey of academic economists gives a median range from 3% to 3.5% for one year, and 5% to 5.5% for 30 years. CFOs estimate the premium will be 5.6% on Treasury bills. The second half of the twentieth century saw a relatively high equity risk premium, over 8% according to some accounts, as opposed to less than 5% in the first half of the century. Given that the century ended at the height of the internet bubble, this random window may not be ideal.
https://www.gold-pattern.com/en
Equity risk premium
Special considerations
The above equation summarizes the theory behind the equity risk premium, but it does not take into account all possible scenarios. The calculation is fairly simple if you plug in the historical rates of return and use them to estimate future rates. But how do you estimate the expected rate of return if you wish to make a forward-looking statement?
 
One way is to use dividends to estimate long-term growth, using a reformulation of the Gordon growth model: k = D / P + g
 
Where:
 
k = expected return expressed as a percentage (this can be calculated for Ra or Rm)
D = Earnings per share
P = share price
g = annual growth in dividends expressed as a percentage
Another is to use growth in profits, rather than growth in profits. In this model, the expected return is equal to the dividend yield, reciprocally to the price-earnings ratio (P / E ratio): K = E / P
https://www.gold-pattern.com/en
Where:
 
K = expected return
E = Earnings per share for twelve months (EPS)
P = share price
The disadvantage of both models is that they do not take into account evaluation. That is, they assume that stock prices are never correct. Since we can observe the booms and crashes of the stock market in the past, this defect is not an easy matter.
Gold Signals
 
Finally, the risk-free rate of return is usually calculated using US government bonds, since they have little chance of default. This could mean Treasury Bills or Treasury Bonds. To arrive at a real rate of return, that is, to adjust it according to inflation, it is easier to use Treasury Inflation Protected Securities (TIPS), since it really represents inflation.

Back to top  Message [Page 1 of 1]

Permissions in this forum:
You cannot reply to topics in this forum