--Pursuing B.Com @Amity University | Looking for internship in Finance | Sales & Marketing | Product Trainee | Management Trainee, CFA level 1
Equity risk premium predicts how much a stock might outperform risk-free investments over the long term. Calculating the risk premium can be done by taking the estimated expected returns on stocks and subtracting them from the estimated expected return on risk-free bonds. Estimating future stock returns is difficult, but it can be done through an earnings-based or dividend-based approach, or by using the price/earnings-to-growth (PEG) ratio. Calculating the risk premium requires some assumptions that run from safe to dubious.
