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Question: question 3 equity premium and international income covariances i provide...

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Question 3: Equity Premium and International Income Covariances i Provide an expression for an individual investors required return on equity. What does it depend on? How can we explain the equity premium based on this relation? ii) Suppose a German investor is considering whether to buy US stocks. Ignore exchange rate considerations. Suppose their labor income tends to comove with German GDP (gross domestic product), that is, when German GDP is high, their income will be high as well. Assume that German GDP is negatively correlated with US GDP, that is, when German GDP is low, US GDP is high. How will the German investors required return on US stocks compare to that of a typical American investor? Explain you answer. MacBook Air FVO F9 F8 F7 F4 F5
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