You want to find the current market risk premium. Go to money.cnn.com, follow the “Bonds & Rates” link, and the “Latest Rates” link. What is the shortest maturity interest rate shown? What is the interest rate for this maturity? Using the large-company stock return in Table 12.3, what is the current market risk premium? What assumption are you making when calculating the risk premium?

Table 12.3

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Investment Large-company stocks Small-company stocks Long-term corporate bonds Long-term government bonds U.S. Treasury bills Average Return 13.0% 17.3 6.0 5.7 3.9 Risk Premium 9.1% 13.4 2.1 1.8 0.0