Question

2- The market has an expected rate of return of 11.2 percent. The long-term government bond is expected to yield 5.8 percent and the U.S. Treasury bill is expected to yield 3.9 percent. The inflation rate is 3.6 percent. What is the market risk premium

Answer 1

Answer:

7.30%

Explanation:

Data provided in the question

Expected rate of return = 11.2 percent

Long term government bond yield = 5.8 percent

U.S treasury bill yield = 3.9 percent

Inflation rate = 3.6 percent

So, the market risk premium is

Market risk premium = Expected return of return - U.S treasury bill yield

= 11.20% - 3.90%

= 7.30%