Study session 6 reading 23 cfai text I am having trouble with practice problem #3 on page 111. Specifically with part b, which asks to calculate he expected total risk premium of the three securities. I understand how to come up with the total risk premium of 1.22%. However the problem then subtracts 1% from this and givers me a final risk premium of .22%. I can not figure out where this 1% comes from. Can anyone please help me out?
Part b also asks what the investment decision will be. The problem states that the user will invest only if the investment has a spread of 0.5 % over the 10 year treasury bond. The 1% is the spread of the 10 year over the 1 year. The decision is that the user will not invest since the difference in the spreads (investment spread - 10 year spread) is 0.22 (which is less than 0.5.
ahhhhh got it now. thanks. i missed that part…