Aswath Damodaran 90
What is your risk premium?
! Assume that stocks are the only risky assets and that you are offered two investment options:
- a riskless investment (say a Government Security), on which you can make 5 %
- a mutual fund of all stocks, on which the returns are uncertain
How much of an expected return would you demand to shift your money from the riskless asset to the
mutual fund?
a) Less than 5 %
b) Between 5 - 7 %
c) Between 7 - 9 %
d) Between 9 - 11 %
e) Between 11 - 13 %
f) More than 13 %
Check your premium against the survey premium on my web site.
I usually find that the median number that I get in the US is 10.7-12.7%, though
the distribution is pretty spread out. This translates into a risk premium of 4-6%.
