Question

The mean annual return on the large stock portfolio is 9%. The mean annual return on...

The mean annual return on the large stock portfolio is 9%. The mean annual return on T-bills if 3%. What is the risk premium for the large stock portfolio?

Do not round at intermediate steps in your calculation. Express your answer in percent. Round to two decimal places. Do not type the % symbol.

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Answer #1

Risk premium for the large stock portfolio = 6%

Explanation;

Formula of risk premium for the large stock portfolio is as follow;

Risk premium for the large stock portfolio =

Mean annual return on the large stock portfolio – mean annual return on T-bills

Mean annual return on the large stock portfolio is given = 9%

Mean annual return on T-bills is given = 3%

Now let’s put the value in above given formula;

Risk premium for the large stock portfolio (9% - 3%) = 6%

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