Please respond to the following questions: Right now, is the market risk premium

Question

Please respond to the following questions:

Right now, is the market risk premium sufficient for you to invest in the stock market?

To answer that question:

How much do you think the stock market will return over and above the Treasury10-year bond rate?

As an investor, is that an important question to answer before you invest in the stock market?

Do you think it will return enough to justify the added risk?

Do you think this premium will vary for different countries or for the same country over different time spans?

Explanation / Answer

The current 10 year US Treasury bond rate is 1.75%. Given such low rate, the market risk permium is sufficiently attractive to enter the stock market. It should also be noted that, with pertinent rate hike by FED, the treasury bond rate are bound to increase, which is already factored in the stock prices. This may lead to short term loss in stock market.

b. Even with the rate hike, the stock market will return 100% more than the Treasure bond rate.

c. yes it is important because, if the risk free return is sufficiently attractive, the risk premium in stock market will be very high and investing in stock market may not be worthwhile.

d.yes very much. In some contries like in africa and India, the risk free return on bonds and deposits are very high at 6% to 9% return. In these markets investing in stock market is risker.

Also it varies in the same country at different time. This is related to interest rate (risk free) determined by the central bank of respective country.

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