That still leaves the question of why the return on capital has remained so high relative to the riskless rate. In our view, the rise in equity valuations is a natural consequence of the decline in riskless rates since, as rates fall, equity prices have to rise to a level at which the future return on holding such equities falls to the point at which the future expected return, adjusted for risk, is in line with the riskless rate.
EqUiTy RP
