Session 6 (Val Undegrads): Implied Equity Risk Premiums and First Steps on Relative Risk

Описание: (I am sorry but I had to reload this file. The previous one had issues with the slides)
In this session, we started by doing a brief test on the relationship between prices and risk premiums. We spent the rest of the class about the dynamics of implied equity risk premiums and what makes them go up, down or stay unchanged. We then moved to cross market comparisons, first by comparing the ERP to bond default spreads, then bringing in real estate risk premiums and then extending the concept to comparing ERPs across countries. Finally, I made the argument that you should not stray too far from the current implied premium, when valuing individual companies, because doing so will make your end valuation a function of what you think about the market and the company. If you have strong views on the market being over valued or under valued, it is best to separate it from your company valuation. I am attaching the excel spreadsheet that I used to compute the implied ERP at the start of February 2024. Play with it when you get a chance. Post class test and solution attached. I have also attached the weekly challenge for this week, which is built around implied equity risk premiums. If you get a chance, try it.
ERP for February: https://pages.stern.nyu.edu/~adamodar...
Start of the class test: https://pages.stern.nyu.edu/~adamodar...
Slides: https://pages.stern.nyu.edu/~adamodar...
Post-class test: https://www.stern.nyu.edu/~adamodar/p...
Post-class test solution: https://www.stern.nyu.edu/~adamodar/p...