- CFA Exams
- CFA Level I Exam
- Topic 4. Corporate Issuers
- Learning Module 18. Cost of Capital: Advanced Topics
- Subject 3. The Equity Risk Premium
CFA Practice Question
What is the primary focus of the historical approach to estimating the equity risk premium (ERP)?
A. Future market expectations
B. Current stock prices
C. Past market data
D. Expected cash flows
Correct Answer: C
This approach is used when reliable long equity return data is available. Before using this approach, an analyst will need to determine if historical market returns provide useful information about the future.
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