In estimating the future equity risk premium,it is important to include assumptions about the:
A)historical distribution of returns on derivative securities only.
B)future risk environment only.
C)amount of risk aversion of future investors only.
D)historical distribution of returns on derivative securities and the future risk environment.
E)future risk environment and the amount of risk aversion of future investors.

Question

Quizplus · Accepted Answer

Estimating the future equity risk premium requires considering the future risk environment, as it directly impacts expected returns, and the amount of risk aversion of future investors, as it influences market dynamics and pricing. Historical data on derivatives alone (A, D) does not provide a comprehensive view of the equity market's future risk and return profile.

In Estimating the Future Equity Risk Premium,it Is Important to Include