Question

If, as a result of the disruption caused by the Covid-19 pandemic, the share market return in 2020 turns out to be –25%, explain what will happen to our estimate of the "normal" risk premium and discuss whether this makes sense.

Answer 1

Answer:

Because of disturbance which has been caused due to covid-19, The share market all over the world has slipped into a bear an area because of vulnerability brought about by the covid-19 pandemic and it is required to proceed with thusly simply because of desire for an approaching downturn in the whole Global world and the shrinkage of interest which can altogether noticeable through absence of worldwide development in the worldwide economy so it tends to be said that there is a great deal of vulnerability and possibility of making a higher pace of return in the securities exchange is low.

In such occasions, when there is a lower probability of making higher pace of return in the securities exchange or stock market, the ris premium will be going up on the grounds that the financial specialists who are needing to invest into the equity markets will be demanding a higher risk premium as there is higher risk related with the general capital disintegration of their capital so they would be attempting to demand higher pace of risk premium and it will be reflected through a larger derivation of risk premium from the chronicled mean since this is anything but an ordinary circumstance and among such vulnerability the equity speculators will be attempting to demand an overabundance risk premium because of vulnerability or uncertainity in the market.