Average of historical market risk premium

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Question

We used the average of historical market risk premium (4%) as a proxy for the expected market risk premium. How valid is that assumption? If you are asked to select one from the lower bound (3%), the upper bound (5%), and the average (4%), which one is more appropriate for the current economy? An important factor to consider is the new variants of Covid-19. How did Covid-19 outbreak in 2020 affect investors' expected return? (E.g., do you think that investors became more risk averse or less risk averse?) If investors believe that the Omicron wave is receding, how does that affect investors' expected return? Use your choice of market risk premium to re-estimate the cost of capital.

Reference no: EM133227556

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