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er Fisher's effect equation anc

er Fisher's effect equation anc

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The market interest rate is 12%, risk-free rate is 5% and inflation rate is 3%. What is the exact real rate of return as per Fisher's effect equation and real risk premium for the market? a. Real rate of return is 6.67%, risk premium for the market is 3.67%. b. Real rate of return is 9.00%, risk premium for the market is 4.00%. c. Real rate of return is 8.74%, risk premium for the market is 3.74%. d. Real rate of return is 7.00%, risk premium for the market is 2.00%.
Transcribed Image Text:The market interest rate is 12%, risk-free rate is 5% and inflation rate is 3%. What is the exact real rate of return as per Fisher's effect equation and real risk premium for the market? a. Real rate of return is 6.67%, risk premium for the market is 3.67%. b. Real rate of return is 9.00%, risk premium for the market is 4.00%. c. Real rate of return is 8.74%, risk premium for the market is 3.74%. d. Real rate of return is 7.00%, risk premium for the market is 2.00%.
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