Market risk premium

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%




I say C

going once, going twice, …

i change, it’s C

come on D daddy needs a new pair of shoes!

C, inflation is included in required rate of return?

crap its c lol


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

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

Don’t you hate my questions?


I like em, they test the mind!

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

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

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

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