relationship between the equity risk premium, Business & Finance Assignment Homework help

fin 405 need an response to discussion

The relationship between the equity risk premium and the aggregate value of the stock market is that the equity risk premium is the expected return on stocks in excess of the risk free rate is a fundamental quantity in all of asset pricing, both for theoretical and practical reasons. It is a key measure of aggregate risk aversion and in important determinant of the cost of capital for corporations, savings decisions of individuals and budgeting plans for governments. As stated in or textbook, “using the forward looking method when estimating the equity risk premium, you must think of the equation in aggregate, macroeconomic terms. In other words, r represents the (real) required return on the stock market rather than the required return on a specific stock.” (Corporate Finance, Graham, Smart pg. 330)