Equity Risk Premium Calculator
Excess equity return above Treasury yield.
Calculate equity risk premium as expected stock return minus Treasury yield. Educational tool — instant results from the numbers you enter.
What this tool does
Enter expected stock return and Treasury yield. The tool shows equity risk premium.
Enter Values
Formula Used
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Disclaimer
Results are estimates for educational purposes only. They do not constitute financial advice. Consult a qualified professional before making financial decisions.
8% expected stock return, 3% Treasury yield: 5% equity risk premium. Historical ERP 4-6% for developed markets. Higher ERP implies greater compensation for risk; lower ERP means stocks relatively expensive vs bonds.
Run it with sensible defaults
Using expected stock return of 8%, treasury yield of 3%, the calculation works out to 5.00%. Nudge the inputs toward your own situation and the output recalculates instantly. The defaults are meant as a starting point, not a recommendation.
The levers in this calculation
The inputs — Expected Stock Return and Treasury Yield — do not pull with equal force. Not every input has equal weight. Flip one at a time toward extreme values to feel which ones move the needle most for your situation.
How the math works
Standard ERP formula. The working is transparent — you can verify every step yourself in the formula section below. No black box, no opaque "proprietary model".
Using this well
Treat the output as one point on a wider map. Run it three times — a pessimistic case, a central case, and a stretch case — and plan against the pessimistic one. That habit alone separates people who stick with an investment plan from those who bail at the first wobble.
What this doesn't capture
Steady-rate math ignores real-world volatility. Actual returns are lumpy; sequence-of-returns risk matters most in drawdown; fees and taxes drag on compound growth; and behaviour changes in drawdowns can reduce outcomes below the projection. Treat the number as one scenario, not a forecast.
Related calculations worth running
Plans get firmer when you triangulate. Alongside this one, the jensens alpha calculator, the angel investment risk return calculator, and the cash on cash return calculator tend to come up in the same conversations. Running two or three together exposes inconsistencies in any single assumption — which is usually where the useful insight lives.
Equity risk premium produces a figure based on the inputs provided.
Inputs
This example uses typical values for illustration. Adjust the inputs above to match a specific situation and see how the result changes.
Sources & Methodology
Methodology
Standard ERP formula.
References
Frequently Asked Questions
Historical range?
Forward-looking ERP?
Use for valuation?
ERP shrinking concern?
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