Estimate the expected return on stocks

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Reference no: EM13920011

A. Suppose that over the long run, the risk premium on stocks relative to Treasury bills has been 7.6% in the U.S. Suppose also that the current Treasury bill yield is 1.5%, but the historical average return on Treasury bills is 4.1%. Estimate the expected return on stocks and explain how and why you arrived at your answer.

B. Suppose that over the long run, the risk-premium on stocks relative to Treasury bonds has been 6.5%. The current Treasury bond yield is 4.5%, but the historical return on T-bonds is 5.2%. Estimate the expected return on stocks and explain how and why you arrived at your answer.

C. Compare your answers above and explain any differences.

Reference no: EM13920011

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