As an approximation to the nominal risk-free rate, what is the risk premium from

Question

As an approximation to the nominal risk-free rate, what is the risk premium from investing in the following asset classes? A. t-bills with an annual average return of 3.8%, a standard deviation of 3.0%, and the inflation rate for the annual return is 3.2% and the standard deviation is 4.0%. B. t-bonds with an annual average return of 5.4%, standard deviation of 7.6%, and the inflation rates are the same as above. cC. stocks with an annual average return of 11.1%, standard deviation of 20.4%, and the inflation rates are the same as above

Explanation / Answer

a.3.8 - 3.2 = 0.6% b. 5.4 - 3.2 = 2.2% c. 11.1 - 3.2 = 7.9%

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