General accounting question Calculate the equity premium on the following set of data:Stock market return: 12.5% Corporate bond return: 8.2% Short-term T-bills: 4.8% Inflation: 3.1%a. 7.7%b. 9.4%c. 8.2%d. 7.1%

The equity premium is the difference between the return on stocks and the return on risk-free…

Answered: Calculate the equity premium on the…

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter7: Types And Costs Of Financial Capital

Section7.4: What Is Investment Risk?

Problem 4CC

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Calculate the equity premium
Assume that the risk-free rate (i.e., Rf) is 2.8%. If, for a particular company bond issue, the default risk premium (i.e., DP) is 3.1%, the maturity risk premium ( i.e., MP) is 0.9%, and the market risk premium ( i.e., MRP) for that company's stock is 12.9% what is the required rate of return for the company's fixed income securities ? Record your answer as a percent , rounded to one decimal place , but do not include a percent sign in your answer . For example , enter 0.1578658 = 15.78625% as 15.8 .
Using the table below, Compute the convexity measure (in years) for bond 2 Bond 1 Bond 2 Coupon Yield to maturity Maturity (in years) Par value 6% 7% 6% 6% 4 $100 $100 $100 $108 Price O A. 14.763 12.652 OC. 13.312 OD. 13.927
Consider the following information from 2017. Item T-bills Return 3.6% Corporate bonds 4.7% Stocks Inflation 7.3% 1.6% What is closest to the real return on corporate bonds? 1% 2% 3% 4%
If the annual geometric mean for the equity risk premium is 8.4 percent, what percentage of the equity risk premium is consumed by trading costs of 1.2 percent?
Assume the following Risk Premiums: DRP ? LP = 0.25% MRP =1.15% 10-year Government bonds yield 4.65% 10-year corporate bonds yield 6.75%. What is the default risk premium on corporate bonds?
In a year in which corporate bonds offered an average return of 9%, treasury bonds offered an average return of 7%, common stocks offered an average return of 16% and Treasury bills offered 3%. The market risk premium was: ______%.
The maturity risk premium for Vonda bonds are 3%, default risk premium for Vonda bonds are 4%, and the liquidity risk premium for Vonda bonds are 2%. The real rate of return is 3% and the inflation premium is 3%. What is the nominal rate of return?
Red Fire has a Debt/Equity Ratio of .1, a return on sales of 3.4, and an asset turnover of 2.3. What is its ROE? Question 7 options: 6.9% 0.8% 8.6% 6.0% 19.8%
The rate of return on which one of the following has a risk premium of 0%? Multiple Choice Long-term government bonds Long-term corporate bonds Intermediate-term government bonds U.S. Treasury bills Large-company stocks
In a bond portfolio, the following are the present values of all cash flows by annual period: Year PV Cash flows (millions) 1 14.3 2 13.2 3 15.3 4 10.5 5 18.4 What is the percentage contribution to duration of the year 3 cash flows? Enter answer in percents.
Consider the following table for the total annual returns for a given period of time. Series Average return Standard Deviation Large-company stocks 12.3% 20.6% Small-company stocks 16.4 33.0 Long-term corporate bonds 6.2 8.4 Long-term government bonds 6.1 9.4 Intermediate-term government bonds 5.6 5.7 U.S. Treasury bills 3.8 3.1 Inflation 3.1 4.2 What range of returns would you expect to see 68 percent of the time for large-company stocks? (A negative answer should be indicated by a minus sign. Input your answers from lowest to highest to receive credit for your answers. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Expected range of returns % to % What about 95 percent of the time? (A negative answer should be indicated by a minus sign. Input your answers from lowest to highest to receive credit for your answers. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal…

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Calculate the equity premium on the following set of data: Stock market return: 12.5% Corporate bond return: 8.2% Short-term T- bills: 4.8% Inflation: 3.1% a. 7.7% b. 9.4% c. 8.2% d. 7.1%