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The following data shows the rate of return on stocks and bonds for several recent years. Calculate

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The following data shows the rate of return on stocks and bonds for several recent years. Calculate the risk premium on equities vs. bonds each year, and then calculate the average risk premium. Do you think that at the beginning of 2007investors expected the outcomes we observe in this table?
The following data shows the rate of return on stocks
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2010 17.1 6.4 Year 2007 2009 5.6 37.2 28.5 9.9 25.9 14.5 2008 Return on stocks Return on bonds ( Risk premium (%)

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The risk premiums are 43 631 140 and 107 Overall the average ri...View the full answer


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Introduction to Corporate Finance What Companies Do

Introduction to Corporate Finance What Companies Do

ISBN: 978-1111222284

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Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.

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