Topic_05_E1 - Topic 5 Exercise 1 Estimating Long-Term Risk...

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Topic 5 Exercise 1 Estimating Long-Term Risk Premiums for Securities An online publication that has important information on asset allocation and portfolio concepts is Efficient Frontier. Whenever one investigates valuation of securities and the relationship between risk and return, one is faced with the challenge of estimating the “equity risk premium.” In “The Expected Return One-Step,” William Bernstein presents a compelling argument based on economics for estimating the appropriate long-term equity premium. After reading the short article by Bernstein, answer the following questions: 1. According to Jim Bianco of Bianco Research, what is the primary determinant of long-run bond yields? When will it make sense for corporations to borrow funds? The main determinant of the bond yield is the growth of GDP and not the supply of bonds in the market. Businesses will seek to invest when the growth rate in GDP is high. High rates of growth in GDP present profitable opportunities for
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This note was uploaded on 09/13/2011 for the course FIN 6301 taught by Professor El-asmawanti during the Fall '09 term at University of Texas at Dallas, Richardson.

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