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Suppose you forecast that the standard deviation of the market return will be 20% in the coming year. If the measure of risk aversion in
Suppose you forecast that the standard deviation of the market return will be 20% in the coming year. If the measure of risk aversion in Er- A = is A = 4: a. What would be a reasonable guess for the expected market risk premium? Market Risk Premium % b. What value of A is consistent with a risk premium of 9%? (Round your answer to 2 decimal places.) Consistent value of A c. What will happen to the risk premium if investors become more risk tolerant? Increased risk tolerance means decreased risk aversion (A), which results in an) in risk premiums
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