Duff & Phelps has decreased its recommended U.S. equity risk premium (ERP) from 6.0% to 5.5% for use as of Dec. 9, 2020, according to a client alert. This new rate, used in conjunction with the firm’s recommended normalized risk-free rate of 2.5%, implies a “base” U.S. cost of equity capital estimate of 8.0% (5.5% + 2.5%). D&P decreased its recommended ERP due to the increasing stock market prices (driven in large part by the expected approvals of COVID-19 vaccines), continuing commitment by the Federal Reserve Bank to maintain low interest rates, lower uncertainty regarding the impact of the U.S. presidential election on the economy and future corporate earnings, and other factors, says the firm.
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