If he were that kind of hands-on manager, this mess might not have happened in the first place.
The real risk-free rate is 4%. 1. The real risk-free rate is 4%. Inflation is expected to be 3% this year and 5% during the next 2 years. Assume that the maturity risk premium is zero.
Instead ofassuming that the risk premium is a constant, and unaffected by the level of inflationand interest rates, which is what we do with historical risk premiums, it may be morerealistic to increase the risk premium as expected inflation and interest ratesincreases.