We know that during the last 10 years, the average historical return on a market index is 12%. We also know that the average inflation rate and average risk-free rate over the last 10 years are 2% and 5%, respectively. What is the real risk premium using the exact Fisher equation?
Select one:
a. 2.94%
b. 6.86%
c. 7.00%
d. 9.80%
e. 10.00%
Given the following share price history, calculate the standard deviation of the returns on this stock.
Year |
Share price |
1 |
$35 |
2 |
$30 |
3 |
$39 |
4 |
$42 |
5 |
$45 |
Select one:
a. 0.18%
b. 5.89%
c. 18.08%
d. 3.27%
e. 1.81%
What is the geometric average return of a stock with the following share price history?
Year |
Share price |
1 |
$35 |
2 |
$30 |
3 |
$39 |
4 |
$42 |
5 |
$45 |
Select one:
a. 7.95%
b. 7.64%
c. 7.14%
d. 6.84%
e. 6.48%
(1) Average Market Index Return = 12 % (Nominal or non inflation adjusted value)
Average Inflation = 2 %
Real Market Index Return = RMIR = [1.12 / 1.02] - 1 = 0.09804 or 9.804%
Average Risk Free Rate = 5 % (Nominal or non inflation adjusted value)
Real Risk Free Rate = RRFR = [1.05/1.02] -1 = 0.02941 or 2.941 %
Therefore, Real Risk Premium = RMIR - RRFR = 9.804 - 2.941 = 6.863 %
Hence, the correct option is (b).
NOTE: Please raise separate queries for solutions to the remaining unrelated questions.
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