标题: Reading 44 (Portfolio Risk and Return: Part 1) EOC 13 and 14 [打印本页] 作者: cross-ied 时间: 2013-4-21 14:34 标题: Reading 44 (Portfolio Risk and Return: Part 1) EOC 13 and 14
On p331, the reading says:
(1 + nominal) = (1 + riskFree) * (1 + inflation) * (1 + riskPremium)
Therefore,
(1 + riskPremium) = (1 + nominal) / [ (1 + riskFree) * (1 + inflation) ]
right?
Problem 13 asks for the “risk premium for equities” given geometric returns of
Equities: 8.0%
Corporate bonds: 6.5%
Treasury bills: 2.5%
Inflation: 2.1%
So the risk premium should equal (1.08) / [ (1.025) * (1.021) ] = 1.0320 or 3.2%, correct? However, the solution says (1.08) / (1.025) = 1.054 or 5.4%. That is, the solution does not include inflation in the denominator. Furthermore, earlier readings (for example, reading 11 p593) define risk premium as “the expected return on stocks minus the risk-free rate”, which implies that the risk premium in problem 13 would be 8% - 2.5% = 5.5% (one of the answer choices, btw).
Same issue with problem 14.
What am I missing here?
Thanks in advance.作者: spartanag07 时间: 2013-4-21 14:36
Valerius is absolutely correct. The key is to differentiate between real and nominal returns 1+r_nom = (1+r_real)*(1+inflation) as well as understand risk premium 1+r_risky=(1+r_riskless)*(1+risk premium).
