Hello,

Please show complete working and answer the question using the "Exact relationship" between Nominal and Real rates, not the "Simple approximation" where you just have to subtract 4.3 from 14.7. Thank You.

Question 1: Risk premium (5pt) The market portfolio of common stocks earned 14.7% last year. Treasury bills earned 4.3% on average last year. The average inflation rate was 4.0%. What was the real risk premium on equities? Use the exact relationship