You are a real estate agent thinking of placing a sign advertising your services

Question

You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. The sign will cost $8,000 and will be posted for one year. You expect that it will generate additional revenue of $ 1, 120 a month. What is the payback period? The payback period is Square months. (Round to two decimal places.) From the start of 1999 to the start of 2009, the S&P; 500 had a negative return. Does this mean the market risk premium we should use in the CAPM is negative? (Select the best choice below.) No, to get a reliable estimate of an expected return we need much more data. No, negative risk premiums arc impossible, there is clearly an error in the estimation. Yes, during this time period the risk premium is negative. Yes, the data shows that the risk premium on the market proxy is negative.

Explanation / Answer

Part 1

Part 2

No! Investors were not expecting a negative return. To estimate an expected return, we need much more data

Pay back period=8000/1120 =7.14 Months

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