Question: a. What is an equity risk premium? b. What is the difference between calculating an equity risk premium using arithmetic returns compared tousing geometric returns?

a. What is an equity risk premium? 

b. What is the difference between calculating an equity risk premium using arithmetic returns compared tousing geometric returns? 

c. In Exhibit 13.3, why are arithmetic mean risk premiums always higher than geometric mean risk premiums?

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a The equity risk premium is the average annual return of the market expected by investors over ... View full answer

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