If historic geometric return is 9% for equities and 3% for Tbills. What is the risk premium?
This question is from CFAI and the answer is 3.8%.
Can anyone explain why we didnt just suntract 3 from 9 to get 6%?
BUMP…isnt the market risk premium for CAPM just calculated be subtraction?
Yup.
The original’s weird.
I forgot to mention that an inflation rate of 2% is given. If you use inflatio to get real rate of return then I get the correct answer but I dont ever remember using inflation rate to get equity risk premium for CAPM
Does it say that the 3% return on T-bills is a real return?
(Even if it does, and inflation is 2%, you should get an MRP of 3.94%, not 3.8%.)
It doesnt say that the return on T-bills is real
Still weird.