Question: In Chapter 7, we saw that if the market interest rate, rd, for a given bond increased, the price of the bond would decline. Applying

In Chapter 7, we saw that if the market interest rate, rd, for a given bond increased, the price of the bond would decline. Applying this same logic to explain
(a) How a decrease in risk aversion would affect prices and earned rates of return,
(b) How this would affect risk premiums as measured by the historical difference between returns on and returns on bonds, and
(c) What the implications of this would be for the use of historical risk premiums when applying the SML equation.

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