Question
solve for the following, the MSCI World Index is a composite index that includes all stocks traded on all exchanges. This index had an annual
solve for the following, the MSCI World Index is a composite index that includes all stocks traded on all exchanges. This index had an annual return standard deviation of 15.86 percent from 1990 to 2019, with an average annual risk premium of 4.65 percent.
a. brazil's stocks had a annual standard deviation in returns of 31.81 percent for the same time frame. What would you predict the expected risk premium for brazil in a global equilibrium model using the data above when the correlation between its stocks and world stock market is 0.56? Exhibit the equations as well as the final solution.
b. brazil's actual average annual risk premium was 12.78 percent. In a global equilibrium model climate, what conclusions would you draw based on your response in part a)? write down two or three sentences
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