Duff & Phelps U.S. Equity Risk Premium Recommendation
Increased from 5.0% to 5.5%, Effective December 31, 2018
The Equity Risk Premium ("ERP") is a key input used to
calculate the cost of capital within the context of the Capital
Asset Pricing Model ("CAPM") and other models. There is
ample academic evidence that the ERP is not constant over time.
Fluctuations in global economic and financial conditions warrant
periodic reassessments of the selected ERP and accompanying
risk-free rate.
Based upon current market conditions, Duff & Phelps is
increasing its U.S. Equity Risk Premium recommendation from 5.0% to
5.5%. The 5.5% ERP guidance is to be used in conjunction with a
normalized risk-free rate of 3.5% when developing discount rates as
of December 31, 2018 and thereafter, until further guidance is
issued.
