Market Portfolio Risk Premium
The risk premium (RP) is the increase over the nominal risk-free rate of return that investor demand as compensation for an investment uncertainty.
Average | 2023 | 2022 | 2021 | 2020 | 2019 | |
---|---|---|---|---|---|---|
Financial Ratios | ||||||
Retention rate | 0.65 | 0.66 | 0.67 | 0.37 | 0.53 | |
Profit margin | 11.00% | 10.95% | 12.28% | 7.13% | 9.37% | |
Asset turnover | 0.76 | 0.79 | 0.71 | 0.63 | 0.69 | |
Financial leverage | 2.81 | 2.84 | 2.90 | 3.11 | 3.00 | |
Averages | ||||||
Retention rate | 0.57 | |||||
Profit margin | 10.15% | |||||
Asset turnover | 0.72 | |||||
Financial leverage | 2.93 | |||||
Estimates | ||||||
Market portfolio dividend growth rate1 | 12.26% | |||||
Add: Market portfolio dividend yield2 | 1.22% | |||||
Expected rate of return on market portfolio | 13.48% | |||||
Less: Risk-free rate of return3 | 4.58% | |||||
Market portfolio risk premium | 8.90% |
1 Market portfolio dividend growth rate = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.57 × 10.15% × 0.72 × 2.93 = 12.26%
2 Market portfolio dividend yield = Next year expected market portfolio dividends ÷ Current market portfolio price
3 Rate of return on LT Treasury Composite (risk-free rate of return proxy)