Market risk premium

CFA Level I
#1

Newly issued Treasury bills are yielding 5%, the expected rate of inflation is 3%, and the market’s cost of common equity capital is estimated to be 12%. Under these circumstances, the market risk premium is approximately: A. 10% B. 12% C. 7% D. 8%

#2

d?

#3

A

#4

D

#5

I say C

#6

going once, going twice, …

#7

i change, it’s C

#8

come on D daddy needs a new pair of shoes!

#9

C, inflation is included in required rate of return?

#10

crap its c lol

#11

C

#12

Actually I get D as well. [(1+0.03)(1+0.05)]^0.5 - 1= 0.04 0.12 -0.04= 8%

#13

C, I think, because both NEW treasury bills and the ESTIMATED cost of equity include the effect of inflation

#14

Don’t you hate my questions?

#15

WFT!!!

#16

I like em, they test the mind!

#17

This question are soo simple but tricky at the same time!! Need to read them very very carefully! Dreary where did you get this question? it is niceeeeeeee

#18

strangedays, nominal rate= (1+real rate)*(1+inflation)-1, no square in there

#19

map1 Wrote: ------------------------------------------------------- > strangedays, nominal rate= (1+real > rate)*(1+inflation)-1, no square in there Thanks map, I just realized I got confused with geometric mean :slight_smile: WFT! LOL I doing quanto questions and at the same time answering the questions in the forum

#20

ever since I joined this site it ends up that I am doing Q’s when I am reading something else, makes it more challenging lol