Not seen that in Schweser, I swear…

There was a thread on it the other day. I hadn’t seen it either.

effect of reading only schweser!!! Chapter on Return Concepts: Equity Risk Premium = [(1+EGREPS)(1+EINFL)(1+EGPE ) -EInc] - LTBYield(Expected risk free return) EGREPS = Expected growth rate in EPS EINFL = Expected long term forecast of Inflation EGPE=Expected growth rate in P/E [defaults to 0, usually) EINC=Dividend yield or growth of income portion.

Macro based multifactor model for calculating equity risk premium. Also called supply side rate of return ERP=[(1+Infl)(1+Growth PE)(1+Growth EPS)-1+Increase in Earnings]-RFR

I think, but not positive, Ibbot Chen provides the equity risk premium. I think this is also called the “macro economic model” , something like compute the equity risk premium with the macro economic model sweet formula: [(1+expected inflation)(1+expected growth in GDP)(1+expected growth in P/E)] -1 + expected return of the market - risk free rate

can someone please confirm that ibbot chen is also called the “supply side rate of return”

Thanks folks. God, I hate Schweser. Last time, I swear…

oops supply side Estimate of Equity risk premium…not rate of return as i wrote earlier…apologies… cf: cfai equity p150

ranjan.rao Wrote: ------------------------------------------------------- > oops supply side Estimate of Equity risk > premium…not rate of return as i wrote > earlier…apologies… > cf: cfai equity p150 Yes, Ibbotson Chen is also referred to as the supply-side estimate of the equity risk premium. CFA state “To illustrate a supply-side analysis, the total return to equity can be analyzed into four components as explained by Ibbotson and Chen” on page 120 of volume 4. Cheers

its in schweser, page 44 book 3

Forward looking estimate of the Equity Risk premium

Ibbotsen Chen is specifically mentioned in an LOS. No idea how Schweser missed this.

Just checked. It is in schweser. The show NY is right, p44. But it’s not referred to as the Ibottson Chen model, but the supply side rate of return.

soddy1979 Wrote: ------------------------------------------------------- > Ibbotsen Chen is specifically mentioned in an LOS. > No idea how Schweser missed this. Which LOS? I just checked the Finquiz site and didn’t see anything.

reading 35 - Supply side estimates of Equity Risk Premium

its in schweser… they just didn’t call it the ibbtson chen.

it’s also called supply side model or somethinglike that.

So is there or is there not an actual LOS # associated with Ibbotsen Chen?

doesn’t mention it by name… but los 35.c: discuss strengths and weaknesses of methods used to determine equity risk premium is present.

cpk123 Wrote: ------------------------------------------------------- > doesn’t mention it by name… > > but los 35.c: discuss strengths and weaknesses of > methods used to determine equity risk premium > > is present. If that’s the case, then I don’t think learning the formula is relevant to the exam. Just know what it is, how it works and move on.