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21 November, 19:05

Suppose that the average annual return on the Standard and Poor's 500 Index from 1969 to 2005 was 14.8 percent. The average annual T-bill yield during the same period was 5.6 percent. What was the market risk premium during these 10 years?

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  1. 21 November, 19:33
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    Market risk premium = 9.2%

    Explanation:

    The market risk premium is the difference between the market returns and the t bill yield. To calculate the market risk premium of this duration we will need to subtract the average annual t bill yield from the average annual return on the standard and poor's 500 index.

    14.8-5.6=9.2
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