Consider the case of a simple one-period framework. If i = 12.50 per cent, k = 14.85 per cent, p = 0.98, and $\gamma$ = 0.85 what is the required risk premium (round to two decimals)?

Question

Quizplus · Accepted Answer

The required risk premium can be calculated using the formula:
Rr = (k - i) - (1 - p) / p x (F1F1F1S1F1F1F10 - 1)

Plugging in the given values we get:
Rr = (14.85% - 12.50%) - (1 - 0.98) / 0.98 x (0.85 - 1)
Rr = 2.35% - 0.0204 = 0.3296

Rounding it off to two decimals, the required risk premium is 0.34%, which is closest to option A. Therefore, the answer is A.

Consider the Case of a Simple One-Period Framework γ\gammaγ = 085 What Is the Required Risk Premium (Round to Two

Consider the Case of a Simple One-Period Framework $\gamma$ = 085 What Is the Required Risk Premium (Round to Two