Saturday 21 April 2018

Suppose we have the following returns for large-company stocks and Treasury bills over a six year period:

Problem 12-8 Risk Premiums [LO2, 3]
Suppose we have the following returns for large-company stocks and Treasury bills over a six year period:

YearLarge CompanyUS Treasury Bill
1   3.956.53
2  14.134.38
3  19.074.25
4–14.617.30
5–32.104.94
6  37.326.14


a.
Calculate the arithmetic average returns for large-company stocks and T-bills over this period. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

 Average returns
  Large company stocks %  
  T-bills %  


b.
Calculate the standard deviation of the returns for large-company stocks and T-bills over this period. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

 Standard deviation
  Large company stocks %  
  T-bills %  


c-1
Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the average risk premium over this period? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  Average risk premium %  

c-2
Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the standard deviation of the risk premium over this period? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  Standard deviation %  

 
Explanation:

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