PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 7, Problem 4PS
Risk premiums* Here are inflation rates and U.S. stock market and Treasury bill returns between 1929 and 1933:
- a. What was the real return on the stock market in each year?
- b. What was the average real return?
- c. What was the risk premium in each year?
- d. What was the average risk premium?
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Assume these were the inflation rates and U.S. stock market and Treasury bill returns between 1929 and 1933:
Year
Inflation(%)
Stock Market Return(%)
T-Bill Return(%)
1929
0.5
–13.2
6.1
1930
–5.5
–30.7
2.9
1931
–9.3
–47.6
1.5
1932
–13.2
–8.2
0.8
1933
0.9
64.2
0.6
What was the real return on the stock market in each year?
What was the average real return?
What was the risk premium in each year?
What was the average risk premium?
Assume these are the stock market and Treasury bill returns for a 5-year period:
Year
Stock Market Return (%)
T-Bill Return (%)
2016
13.0
0.2
2017
21.0
0.8
2018
-6.2
1.8
2019
29.8
2.1
2020
20.6
0.4
Required:
What was the risk premium on common stock in each year?
What was the average risk premium?
What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)-- expressed in % (NOTE: 11.31% is incorrect)
ssume these were the inflation rates and U.S. stock market and Treasury bill returns between 1929 and 1933:
Year
Inflation(%)
Stock Market Return(%)
T-Bill Return(%)
1929
0.5
–13.2
6.1
1930
–5.5
–30.7
2.9
1931
–9.3
–47.6
1.5
1932
–13.2
–8.2
0.8
1933
0.9
64.2
0.6
What was the average risk premium?
Chapter 7 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 7 - Rate of return The level of the Syldavia market...Ch. 7 - Real versus nominal returns The Costaguana stock...Ch. 7 - Arithmetic average and compound returns Integrated...Ch. 7 - Risk premiums Here are inflation rates and U.S....Ch. 7 - Risk Premium Suppose that in year 2030, investors...Ch. 7 - Stocks vs. bonds Each of the following statements...Ch. 7 - Expected return and standard deviation A game of...Ch. 7 - Standard deviation of returns The following table...Ch. 7 - Average returns and standard deviation During the...Ch. 7 - Prob. 10PS
Ch. 7 - Prob. 11PSCh. 7 - Diversification Here are the percentage returns on...Ch. 7 - Risk and diversification In which of the following...Ch. 7 - Prob. 14PSCh. 7 - Portfolio risk To calculate the variance of a...Ch. 7 - Portfolio risk a) How many variance terms and how...Ch. 7 - Portfolio risk Table 7.8 shows standard deviations...Ch. 7 - Portfolio risk Hyacinth Macaw invests 60% of her...Ch. 7 - Stock betas What is the beta of each of the stocks...Ch. 7 - Stock betas There are few, if any, real companies...Ch. 7 - Portfolio betas A portfolio contains equal...Ch. 7 - Portfolio betas Suppose the standard deviation of...Ch. 7 - Portfolio risk Here are some historical data on...Ch. 7 - Portfolio risk Suppose that Treasury bills offer a...
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