Home / Questions / Suppose you forecast that the standard deviation of the market return will be 20% in the c...
a. Suppose you forecast that the standard deviation of the market return will be 20% in the coming year. If the measure of risk aversion in Equation 5.13 is A 5 4, what would be a reasonable guess for the expected market risk premium?
What value of A is consistent with a risk premium of 9%?
What will happen to the risk premium if investors become more risk tolerant?
(LO 5-4)
Using the historical risk premiums as your guide, what is your estimate of the expected annual HPR on the S&P 500 stock portfolio if the current risk-free interest rate is 5%? (LO 5-3)
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