$1$

Problem $11-5$ Risk Premiums and Discount Rates $($LO$1)$

Top hedge fund manager Sally Buffit believes that a stock with the same market risk as the S&P $500$ will sell at year$-$end at a price of

$20$

$$44.$ The stock will pay a dividend at year$-$end of $$2\mathrm{.}00.$ Assume that risk$-$free Treasury securities currently offer an interest rate of points $1\mathrm{.}9\%.$

Average rates of return on Treasury bills, government bonds, and common stocks, $1900-2020($figures in percent per year$)$ are as follows.

$\backslash$table$[[,\backslash$table$[[$Average Annual$],[$Rate of Return$],[(\%)$