Question

Asset Past 5 years Past 10 Years Past 50 years Stock market 9.5% 5.6% 6.3% Long...

Asset Past 5 years Past 10 Years Past 50 years
Stock market 9.5% 5.6% 6.3%
Long term bonds 7.2% 3.3% 4.2%
Short term treasuries 1% 2.1% 3.1%

Given the information above

Current yield on a 10-year to maturity bond if 0.8% and for short term treasury is 1.25%. The beta of a company 'ABC' estimated from regression of monthly returns over the past 5, 10 and 50 years is (in correspond) 0.6, 1.3, 1.8.

Question1: What is estimation of the equity risk premium using long-term bonds as the riskless asset?

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Answer #1

Equity risk premium = Beta * (Market return - risk free rate) here the market return is taken from the stock market and risk

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