Reference no: EM132007198
Suppose we have the following returns for large-company stocks and Treasury bills over a six year period:
| Year |
Large Company |
US Treasury Bill |
| 1 |
3.92 |
5.90 |
| 2 |
14.18 |
2.53 |
| 3 |
19.37 |
3.76 |
| 4 |
-14.31 |
7.16 |
| 5 |
-31.80 |
5.42 |
| 6 |
37.08 |
6.24 |
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 |
4.74 % |
| T-bills |
5.17 % |
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 |
24.83 % |
| 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 -.428 %
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 25.07 %