Risk Premium Calculator
Determine Equity Risk Premium (ERP) and expected portfolio returns using CAPM. Features country-specific risk spreads, market history, and real-time Beta adjustments.
About
Investors demand compensation for bearing uncertainty. The Risk Premium is the excess return required over a risk-free benchmark (typically government bonds) to justify holding a volatile asset. This calculator derives the Expected Return E(Ri) using the Capital Asset Pricing Model (CAPM), a cornerstone of modern financial theory.
Valuation accuracy depends on inputs like the Country Risk Premium (CRP). Emerging markets carry higher default spreads than developed economies, inflating the required discount rate for corporate valuation. This tool integrates sovereign default spreads and mature market premiums to calculate the Total Equity Risk Premium (ERP) for over 50 nations. It is essential for determining the Cost of Equity Ke in Discounted Cash Flow (DCF) models.
Formulas
The Capital Asset Pricing Model defines the expected return as:
Where:
- Rf is the Risk-Free Rate (Yield on long-term Gov Bonds).
- β is the Beta (Systematic risk relative to the market).
- (Rm − Rf) is the Market Risk Premium (ERP).
For international contexts, the Adjusted ERP is:
Reference Data
| Country/Region | Bond Rating (Moody's) | Risk-Free Rate (Rf) | Default Spread | Total Equity Risk Premium |
|---|---|---|---|---|
| United States | Aaa | 4.10% | 0.00% | 4.60% |
| Germany | Aaa | 2.35% | 0.00% | 4.60% |
| United Kingdom | Aa3 | 3.80% | 0.55% | 5.32% |
| Brazil | Ba2 | 11.25% | 3.10% | 8.63% |
| India | Baa3 | 7.15% | 1.95% | 7.14% |
| Japan | A1 | 0.85% | 0.65% | 5.45% |
| China | A1 | 2.60% | 0.65% | 5.45% |
| South Africa | Ba2 | 10.50% | 3.10% | 8.63% |