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% 2016-03-15T00:00:00.0000000 /insights/publications/cost-of-capital/duff-phelps-increases-recommended-us-equity-risk-premium-from-5-0-to-5-5 publication {B062D54C-1425-4A04-8F9F-95EA14068E6D} {51947818-C499-4911-9447-3AA383066F9E} {E010DCD9-B7BA-4B98-9F3C-A51506B5C1D8} {C91DEFE0-8446-4573-8D7B-6D30B0BA9D81}

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