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Return and Risk premium models - how do navigate it all?
I think the title speaks for itself, there is just so much of it!
Things that are confusing me - what risk free rate to use. I got burnt by 2 questions in one item set from Kaplan (I think it was Portfolio management rather than Equity but no matter) where they asked to calculate risk premium - one from APT model and the other one from macroeconomic factor. There were 2 risk free rates given (TBills and Tbonds or some such, basically a short-term and long-term rf rates) and for some reason each question used a different risk free rate. Why? I don't get it? Are some of the models explicitly more short term than others?
Also, one on CAPM. Now thanks to my background, I am pretty on CAPM and econometrics in general. What I dont get is how to distinguish between the following 2 applications:
1) Ri=alpha + beta*RM
2) Ri=rf + beta*MRP, where MRP = RM-rf
Also, what are managing to learn all the different models and their applications?