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

2015 ©TutorsGlobe All rights reserved. TutorsGlobe Rated 4.8/5 based on 34139 reviews.