Answered By: Barbara Coffey
Last Updated: Sep 30, 2019     Views: 40

The CAPM (capital asset pricing model) formula is  :

Expected return = Risk free rate + Beta (expected market return – Risk free rate)

So reformatting this equation the Equity Risk Premium = Expected Return - Risk Free rate = Beta(Expected market return-Risk free rate)

  • Beta is the measure of company specific risk or volatility
  • Using Bloomberg - Ticker<equity>BETA<go> - as beta is a comparison to a market index, confirm that the market index it defaults to is the correct benchmark for the ticker.  For instance the NASDAQ Composite is more relevant the the S&P 500 for technology stocks. 
  • Bloomberg in Firestone (A Floor - RIS Suite)
    • Additional company risk ratings
      • Type the company's ticker symbol and hit the Equity key
      • Type RSKC and hit GO. 
    • Company equity risk premiums
      • Hit Equity
      • Type EQRP and hit GO. 
    • Country equity risk premium 
      • Hit the yellow Equity Key
      • Type CRP and hit the green GO key. 
    • Stocks, Bonds, Bills, and Inflation by Ibbotson Associates.
      • Most recent print version in Firestone Trustee Reading Room Reference, call number HG4507.S86.
    • Note this data is also available in the Morningstar Direct database.

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