The level of the Syldavian market index is 21,600 at the start of the year and 26,100 at the end. The dividend yield on the index is 4.3%. a. What is the return on the index over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. If the interest rate is 5%, what is the risk premium over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
The level of the Syldavian market index is 21,600 at the start of the year and 26,100 at the end. The dividend yield on the index is 4.3%.
a. What is the return on the index over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
b. If the interest rate is 5%, what is the risk premium over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
c. If the inflation rate is 7%, what is the real return on the index over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
