Portfolio Management Q72

72An analyst observes that the historic geometric return is 10% for equities, 2% for treasury bills and 3% for inflation. The real rate of return and risk premiums for equities are closest to:

Option : C
Explanation : The real of return and risk premium are calculated as: Real rate of return = [(1 + 0.1) / (1 + 0.03)] - 1 = 6.8% Risk Premium = [(1 + 0.068) / (1 + 0.02)] - 1 = 4.7%

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