--%>
Assignment Help - homework help

Shall we use the arithmetic mean or the geometric one

The market risk premium is the difference between the historical return on the stock market and the return on bonds. But how many years does “historical” imply? Shall we use the arithmetic mean or the geometric one?

E

Expert

Verified

The risk premium that is relevant for the calculation of the required return to shares is one explained in A78 and this does not have much to do either along with the historic one or with the implicit or expected ones.

   Related Questions in Corporate Finance

  • Q : Difference between intrinsic value and

    XYZ explained the difference between intrinsic value and book value in terms of the money spent on a college education. Please provide another example using a different simile.

    		•
  • Q : Is this better to repurchase shares or

    Assuming a company needs to distribute money to shareholders of it, is this better to repurchase shares or to distribute dividends?

    		•
  • Q : Define the term Stock Market crash

    Stock Market Crash was responsible for the Great Depression. Middle class families lost all their savings as they had gambled the market on margin.Those banks which were under the loan ofbrokers’ started removing money out of the savings account

    		•
  • Q : Problem on annual lease payments Taurus

    Taurus Corporation needs a computer, which it can buy for $100,000. Taurus will depreciate the computer uniformly over its useful life of 5 years. An investment tax credit of 7% is also available, and the computer will have no residual value. Taurus plans to borrow th

    		•
  • Q : Calculating Super normal profit The

    The case study of an economic analysis is done for Schlumberger, oilfield Service Company.  They are No. 1 in terms of market caps, revenue and employees globally. When any references are used/outside sources (except for Schlumberger's annual reports and financia

    		•
  • Q : What is the impact of auto portfolio

    What is the impact of auto portfolio into the quotation of the shares?

    		•
  • Q : Explain method to analyze and to value

    Are there any methods to analyze and to value seasonal businesses?

    		•
  • Q : Define Working capital requirement

    Working capital requirement: Is a financial term known as WCR, which is used to judge the operational liquidity of the business and it is a part of operational capital. A firm in spite of having a good profitability and assets may not have a good liqu

    		•
  • Q : Benefits of Cash to cash analysis

    Benefits of Cash to cash analysis: The benefits of Cash to cash analysis are as following: 1. Helps in better cash management situation thus, increasing liquidity. 2. The cash a

    		•
  • Q : Explain consensus among the chief

    Is there any consensus among the chief authors in finance concerning the market risk premium?

    		•