Assume that an average coefficient of risk aversion triples in the result of the stock market crash.
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Question:
Assume that an average coefficient of risk aversion triples in the result of the stock market crash. According to CAPM, what should happen with the equilibrium risk premium on the stock market if the standard deviation of its returns does not change?
a.
It will increase by a factor of 3
b.
It will increase by a factor of 9
c.
It will decrease by a factor of 3
d.
The premium will stay the same
e.
It will decrease by a factor of 9
Related Book For
Financial Management Theory and Practice
ISBN: 978-0176517304
2nd Canadian edition
Authors: Eugene Brigham, Michael Ehrhardt, Jerome Gessaroli, Richard Nason
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