The annual standard deviation in stock returns is about 20%. Assuming that annual returns are independent of each other, how many years of historical data will you need to lower the standard error in your estimate to 1% ? 100 years 200 years 400 years None of the above QUESTION 8 The implied equity risk premium is forward-looking, estimated from the level of stock prices (the index) today and expected earnings/cash flows in the future. Assume that you compute the implied ERP at the start of a year and the market goes up 20% during the year and that you compute the implied ERP again at the end of the year. If the risk-free rate and growth rate do not change over the year, which of the following would you expect to happen to the implied ERP? The ERP will go down. The ERP will go down if the earnings/ cash flows went up by less than 20% during the year. The ERP will go down if the earnings/ cash flows went up by more than 20% during the year. The ERP will not change. The ERP will go up. QUESTION 9 The two-year futures price of Australian dollars (AUD) is $0.6533/AD, while the AUD spot price is $0.7111. If U.S. risk-free rate is 2.1%, what is the implied risk-free rate in Australia? Between 2\% and 5\% Between 5% and 7% Between 7\% and 10\% None of the above