Money & Business
Estimating the cost of equity
...simple difference between the two. Based on the historical data on nominal returns for the period 1900–2000 (Dimson et al., 2002) and using Treasury bills as the risk-free investment, the equity risk premium was 12.1% – 5.1% = 7%. If, instead, long-term government bonds were used as the risk-free benchmark, the market premium was somewhat lower: 12.1% – 6.1% = 6%....