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Suppose the one year T-bill yields 2.1%, and you have the following forecasts for two stocks: Stock 1: Current price: $105, 1 year estimate: $120,
Suppose the one year T-bill yields 2.1%, and you have the following forecasts for two stocks: Stock 1: Current price: $105, 1 year estimate: $120, historical beta: 1.2, standard deviation: 25% Stock 2: Current price: $43, 1 year estimate: $48, historical beta: 0.95, standard deviation: 12% What is your forecast of the market risk premium? Use the average from the two stocks, and express your answer as a decimal instead of a percent. a. 0.118 b. 0.109 c. 0.101 d. 0.124 e. 0.093
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