Tue, Mar 15, 2016

Duff & Phelps Increases Recommended U.S. Equity Risk Premium from 5.0% to 5.5%

Duff & Phelps regularly reviews fluctuations in global economic and financial market conditions that warrant periodic reassessments of the recommended Equity Risk Premium (ERP). Based upon current market conditions, Duff & Phelps recommends an increase in the U.S. ERP to 5.5% when developing discount rates as of January 31, 2016 and thereafter (until further guidance is issued). The prior Duff & Phelps recommended U.S. ERP was 5.0%, established as of February 28, 2013. Both of these ERP estimates were measured relative to a normalized yield of 4.0% on 20-year U.S. Treasury bonds. Click here to read the report.

Note that for valuations performed as of December 31, 2015, the Duff & Phelps U.S. ERP recommendation remained at 5.0%, matched with a normalized risk-free rate of 4.0%.

The ERP is a key input used to calculate the cost of equity capital within the context of the Capital Asset Pricing Model (CAPM) and other models. The ERP is used as a building block when estimating a company’s discount rate and is an essential ingredient of any business valuation.

Duff & Phelps Increases Recommended U.S. Equity Risk Premium from 5.0% to 5.5% /en/insights/publications/cost-of-capital/duff-phelps-increases-recommended-us-equity-risk-premium-from-5-0-to-5-5 2016-03-15T04:00:00.0000000 publication {796A58E9-D284-46A9-96EC-56B0D27685A6}{9763680C-5D58-4FFD-A93E-9C2B56959D4F}{746781D2-7596-4EA3-BB0D-61CC7AC16C05}{CC4AA7F7-C91B-4C23-A8A9-F85252244AAE}

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