a. Suppose that, over the long run, the risk-premium on stocks relative to Treasury bills has been

Question:

a. Suppose that, over the long run, the risk-premium on relative to Treasury bills has been 7.6 % in the United States. Suppose also that the current Treasury bill yield is 1.5%, but the historical average return on Treasury bills is 4.1%. Estimate the on and explain how and why you arrived at your answer.
b. Suppose that, over the long run, the risk-premium on relative to Treasury bonds has been 6.5%. The current Treasury bond yield is 4.5%, but the historical return on T-bonds is 5.2%. Estimate the on and explain how and why you arrived at your answer.
c. Compare your answers above and explain any differences.
Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...