Question: *please explain how to do the problem* Suppose you forecast that the standard deviation of the market return will be 20% in the coming year.

*please explain how to do the problem*

Suppose you forecast that the standard deviation of the market return will be 20% in the coming year. If the measure of risk aversion in is A = 4.


a.

What would be a reasonable guess for the expected market risk premium?

Market risk premium %

b.

What value of A is consistent with a risk premium of 9%? (Round your answer to 2 decimal places.)

Consistent value of A
c. What will happen to the risk premium if investors become more risk tolerant?

Increased risk tolerance means decreased risk aversion (A), which results in a(n) in risk premiums.
Suppose you forecast that the standard deviation of the market return will be 20% in the coming year. If the measure of risk aversion in What would be a reasonable guess for the expected market risk premium? What will happen to the risk premium if investors become more risk tolerant? What value of A is consistent with a risk premium of 9%

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