ESSENTIALS OF INVESTMENTS>LL<+CONNECT
ESSENTIALS OF INVESTMENTS>LL<+CONNECT
11th Edition
ISBN: 9781264001026
Author: Bodie
Publisher: MCG
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Chapter 5, Problem 8PS

a. Suppose you forecast that the standard deviation of the market return will be 20% in the coming year. If the measure of risk aversion in Equation 5.16 is A = 4. What would be a reasonable guess for the expected market risk premium?
b. What value of A is consistent with a risk premium of 9%?
c. What will happen to the risk premium if investors become more risk tolerant? (LO 5-4)

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3 years ago, you invested $9,200. In 3 years, you expect to have $14,167. If you expect to earn the same annual return after 3 years from today as the annual return implied from the past and expected values given in the problem, then in how many years from today do you expect to have $28,798?
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ESSENTIALS OF INVESTMENTS>LL<+CONNECT

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