Are both the basis and risk premium observable by traders in the futures market? Or are...

Are both the basis and risk premium observable by traders in the futures market? Or are only one/none of them easily observed?

Expert Solution

Yes, both basis and risk premium are observable by traders in the futures market. The basis risk is mainly observable by prices of the underlying commodities, certainality of the interest rate and forward prices of the commodities. on the other hand, risk premium is to some extent is observable by type of the commodity whether it is storable or non-storable and position of speculators and hedgers.

jeff jeffy answered 2 years ago

What are the differences among the Market return, the Market risk premium, the Market risk price,...

What are the differences among the Market return, the Market risk premium, the Market risk price, and the return on an individual asset or a portfolio of assets versus the asset’s or portfolio’s risk premium?

a). What is the market risk premium if the risk free rate is 5% and the...

a). What is the market risk premium if the risk free rate is 5% and the expected market return is given as follows? State of nature Probability Return Boom 20% 30% Average 70% 15% Recession 10% 5% b). A firm is evaluating two projects that are mutually exclusive with initial investments and cash flows as follows: Project A Project B Initial Investment End-of-Year Cash Flows Initial Investment End-of-Year Cash Flows RM40,000 RM 20,000 RM 90,000 RM 40,000 RM 20,000 RM...

The risk-free interest rate is 4.0%. The market risk premium or MRP is 6%. The market...

The risk-free interest rate is 4.0%. The market risk premium or MRP is 6%. The market index has a standard deviation of 20%. Habanero common stock has a standard deviation of 40% and a correlation coefficient of 0.40 with the market portfolio. Calculate the equity Beta and the required return for Habanero’s stock.

If the market risk premium is 2%, the risk-free rate is 4.4% and the beta of...

If the market risk premium is 2%, the risk-free rate is 4.4% and the beta of a stock is 1.2, what is the expected return of the stock?

The risk-free rate is 1.27% and the market risk premium is 7.65%. A stock with a...

The risk-free rate is 1.27% and the market risk premium is 7.65%. A stock with a β of 1.34 just paid a dividend of $1.29. The dividend is expected to grow at 20.50% for three years and then grow at 4.96% forever. What is the value of the stock? The risk-free rate is 1.13% and the market risk premium is 9.58%. A stock with a β of 1.16 just paid a dividend of $1.86. The dividend is expected to grow...

The risk-free rate is 1.86% and the market risk premium is 7.72%. A stock with a...

The risk-free rate is 1.86% and the market risk premium is 7.72%. A stock with a β of 1.74 just paid a dividend of $2.78. The dividend is expected to grow at 22.07% for five years and then grow at 4.02% forever. What is the value of the stock? Answer format: Currency: Round to: 2 decimal places.

The risk-free rate is 2.37% and the market risk premium is 6.39%. A stock with a...

The risk-free rate is 2.37% and the market risk premium is 6.39%. A stock with a β of 1.60 just paid a dividend of $2.67. The dividend is expected to grow at 21.99% for three years and then grow at 3.53% forever. What is the value of the stock? The answer is $48.21 but not sure how to get that answer. Please show the finance calculator steps if possible and not excel! Thanks

Assume that the risk-free rate is 6% and the market risk premium is 3%.

EXPECTED AND REQUIRED RATES OF RETURN Assume that the risk-free rate is 6% and the market risk premium is 3%. What is the required return for the overall stock market? Round your answer to two decimal places. % What is the required rate of return on a stock with a beta of 0.8? Round your answer to two decimal places.

1. The risk free rate is 2%, the risk premium for the market is 5%, and...

1. The risk free rate is 2%, the risk premium for the market is 5%, and a stock has an expected return of 10.5%. What is the firm’s beta? 2. A firm has a beta of 1.3 and the risk premium for the market is 6%. If the firms expected return is 11%, what is the risk free rate? 3. A firm with a beta of 1.5 has a market return of 15% when the risk free rate is 3%...

The risk-free rate is 1.25% and the market risk premium is 5.78%. A stock with a...

The risk-free rate is 1.25% and the market risk premium is 5.78%. A stock with a β of 0.84 just paid a dividend of $2.17. The dividend is expected to grow at 20.45% for three years and then grow at 4.90% forever. What is the value of the stock? Submit Answer format: Currency: Round to: 2 decimal places. unanswered not_submitted Attempts Remaining: Infinity #2 The risk-free rate is 1.04% and the market risk premium is 8.82%. A stock with a...

Question