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 | 0.66 | 0.67 | 0.69 | 0.40 | 0.55 | |
Profit margin | 10.92% | 10.95% | 12.26% | 7.14% | 9.33% | |
Asset turnover | 0.76 | 0.79 | 0.71 | 0.63 | 0.68 | |
Financial leverage | 2.78 | 2.82 | 2.87 | 3.07 | 2.97 | |
Averages | ||||||
Retention rate | 0.59 | |||||
Profit margin | 10.12% | |||||
Asset turnover | 0.71 | |||||
Financial leverage | 2.90 | |||||
Estimates | ||||||
Market portfolio dividend growth rate1 | 12.40% | |||||
Add: Market portfolio dividend yield2 | 1.22% | |||||
Expected rate of return on market portfolio | 13.62% | |||||
Less: Risk-free rate of return3 | 4.55% | |||||
Market portfolio risk premium | 9.07% |
1 Market portfolio dividend growth rate = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.59 × 10.12% × 0.71 × 2.90 = 12.40%
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)