CFA Program Quiz: Revisiting the Equity Risk Premium

Upon reading the content "Revisiting the Equity Risk Premium" by Roger Ibbotson, undergraduate finance students will be able to:

  • Explain the historical context and significance of the equity risk premium and its relationship with the capital asset pricing model (CAPM).
  • Identify the various factors that contribute to the equity risk premium: time horizons, inflation, and asset class characteristics such as size and liquidity.
  • Differentiate between arithmetic and geometric mean returns and discuss their implications for measuring risk premiums.
  • Recognize the components of returns for different asset classes and understand how different premiums can be stacked for different asset classes.
  • Identify the methodologies used to estimate the equity risk premium: historical, demand, supply, and survey approaches.
  • Know that there are differing opinions regarding the contribution buybacks make in explaining the equity risk premium.