Question

The market has an expected rate of return of 12.6 percent. The long-term government bond is expected to yield 5.8 percent and the U.S. Treasury bill is expected to yield 3.3 percent. The inflation rate is 3.2 percent. What is the market risk premium?

Answer 1

The market risk premium is 9.3%

Step-by-step explanation:

Market risk premium can be obtained by calculating the difference between the expected return on the market and the risk-free rate.

In the question given, the risk rate fee refers to the US treasury bill.

Therefore,

Market risk premium = market rate-risk free rate

= (12.6% - 3.3%)

= 9.3%

So, in the question given, the market risk premium is

9.3%