You read in BusinessWeek that a panel of economists has estimated that the long-run real growth rate of the U.S. economy over the next five-year period will average 3 percent. In addition, a bank newsletter estimates that the average annual rate of inflation during this five-year period will be about 4 percent. What nominal rate of return would you expect on U.S. government T-bills during this period?
Answer to relevant QuestionsWhat would your required rate of return be on common stocks if you wanted a 5 percent risk premium to own common stocks given what you know from Problem 10? If common stock investors became more risk averse, what would ...“Young people with little wealth should not invest money in risky assets such as the stock market, because they can’t afford to lose what little money they have.” Do you agree or disagree with this statement? Why?Suppose your first job pays you $28,000 annually. What percentage should your cash reserve contain? How much life insurance should you carry if you are unmarried? How much if you are married with two young children?Discuss why you would expect a difference in the correlation of returns between securities from the United States and from alternative countries (for example, Japan, Canada, South Africa).Discuss why financial analysts consider antiques and art to be illiquid investments. Why do they consider coins and stamps to be more liquid than antiques and art? What must an investor typically do to sell a collection of ...
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