Question

	Average Annual Rates												Standard Deviation
	T-Bills				Inflation				Real T-Bill				T-Bills				Inflation				Real T-Bill
All months		3.46				2.10				0.56				3.12				4.07				3.81
First half		1.04				1.68			−	0.29				1.29				5.95				6.27
Recent half		4.45				3.53				0.90				3.11				2.89				2.13

(1926-2016)	Market Index				Big/ Growth				Big/ Value				Small/ Growth				Small/ Value
Mean excess return (annualized)		0.83				7.98				11.67				8.79				15.56
Standard deviation (annualized)		18.64				18.50				24.62				26.21				28.36

Suppose that the inflation rate is expected to be 2.10% in the near future using the data provided above, what would be your predictions for the following?

1) The T-Bill rate %?

2) The expected rate of return on the Big/Value Portfolio %?

3) The risk premium on the stock market?

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

| 0 = a = 3 3 4 5 W ? v L 1 ENG 01:58 13-02-2020 23 YV96 YO YPYQYR YS YT YU W Y YX YY YZZA ZB TBILL RATE REALT BILL RATE + INFLATION RATE 0.56% + 2.10% = 2.66% THE EXPECTED RATE OF RETURN ON BIG/VALUE PORTFOLIO MEAN EXCESS RETURN +T BILL RATE 11.67% +2.66% = 14.33% THE RISK PREMIUM ON STOCK MARKET UNCHANGED ... UTILITY, SHARPE, beta convexity DGM beta port future INDEX INTL CAP BUD SANDRINE LEASING PV, FV, ANNUITY DIR right clean YIELD bond portf ... ►