Can someone give me some help here? Thanks作者: Daniel1985 时间: 2011-7-13 16:43
I agree verbiage of the question is bit misleading but I don't think you are asked to calculate real risk premium here. It's "real rate of return for equities" and "risk premium for equities". Risk premium for equities is the extra risk you take to invest in equities because of uncertainty in future the cash flows. Your calculation would have been correct if you were asked to calculate real risk premium for equities. I hope it helps!作者: farrukhsadiq 时间: 2011-7-13 16:43
I think there's an error there. Exactly same question is in practice problems for reading 52 of vol 4 curicullum (question 11-14, p.380). In curriculum calculation is correct.
So to calrify again:
Rnom - nominal rate of return
Rf- risk free rate
Rp- risk premium
Rinf - inflation rate
(1+Rnom)=(1+Rp)(1+Rf)(1+Rinf)
If you divide both sides by (1+Rinf) you get
(1+Rnom)/(1+Rinf)=(1+Rp)(1+Rf) =>is called real rate of return
Now coming back to mock - real rate of return for equities is:
1.09/1.02 =1.0686 which is ok
However in order to get Rp for equities you need to:
(1+Rnom)/[(1+Rf)(1+Rinf)] where (1+Rf)(1+Rinf) is equivalent to 3% (treasury bills for which Rp=0)
so (1.09)/(1.03) = 1.0582 => correct answer should be C
As I said, in curriculum they calculate it correctly, no idea why mistake here, hope they will make it correctly for real exam.
Edit: BTW they posted errata to this specific question on www with mocks. So we're both right and they have corrected it
Edited 1 time(s). Last edit at Wednesday, June 1, 2011 at 06:14PM by dadalsky.
