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Estimating the market risk premium and NPV

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If the average annual rate of return for common stocks is 11.7%, and for treasury bills it is 4.0%, what is the market risk premium?

What is the net present value (NPV) of the following cash flows at a discount rate of 9%?

t=0 -250,000
t=1, 100,000
t=2, 150,000
t=3, 200,000

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Solution Summary

There are two problems. Solution to first problem calculates the market risk premium. Solution to second problem depicts the methodology to calculate the NPV in the given case.

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If the average annual rate of return for common stocks is 11.7%, and for treasury bills it is 4.0%, what is the market risk ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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