What is the typical range for the equity risk premium?

The typical range for the equity risk premium is indeed between 4% to 7%. The equity risk premium represents the additional return that investors expect to earn from investing in stocks over risk-free assets, such as government bonds.

Historically, this range reflects the average excess return that equities have provided compared to risk-free rates over long periods. The equity risk premium can fluctuate depending on various factors, including market conditions, economic fundamentals, and investor sentiment. However, empirical studies and financial models often suggest that a range of 4% to 7% aligns well with long-term historical data, adjusted for risk perceptions and market cycles.

Higher or lower ranges, such as the options suggesting 1% to 3%, 8% to 10%, or 11% to 15%, do not accurately represent the historical performance and expectations seen in equity markets. For example, a 1% to 3% range would be too low, as it does not account for the significant returns that equities typically generate over the long term. On the other hand, ranges above 7% might represent overly optimistic projections or periods of unusually high market returns that are not sustainable in the long term. Thus, the 4% to 7% range