Different meanings
Equity risk premium can mean the required compensation for risk in a model, a historical realized difference or an amount implied by current prices under a selected forecast. These values are not equivalent in meaning. Materials on discount rates use premium estimates as assumptions for determining the required return.[93](#source-cv-rates)
Illustrative calculation
If an educational model sets a base rate of 5% and a premium of 4 percentage points with unit sensitivity to the relevant risk, the simple sum is 9%. This is a conditional construction, not an estimate of the market in October 2026 and not a promise of income to a share owner.
Limits and application
A premium is not a coupon or a contractual payment. A historical increment may be negative over the selected period, and the future value is unknown. Application requires the currency, date, method, market and alignment of the risk with the cash flow. Transferring a foreign historical value to another market without checking creates false precision. The higher the required return, the lower the present value of the same specified cash flow, but not the more reliable the actual return.