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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

  1. 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 5 4, what would be a reasonable guess for the expected market risk premium?

  1. What value of is consistent with a risk premium of 9%?

  2. What will happen to the risk premium if investors become more risk tolerant?

(LO 5-4)

  1. 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)

Jun 17 2020 View more View Less

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