Suppose we have the following returns for large-company stocks and Treasury bill

Question

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

Calculate the arithmetic average returns for large-company stocks and T-bills over this period. (Round your answers to 2 decimal places. (e.g., 32.16))

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

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 and round your final answer to 2 decimal places. (e.g., 32.16))

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 and round your final answer to 2 decimal places. (e.g., 32.16))

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

Explanation / Answer

a. Aritmetic returns

Large company stocks: 4.77%

T-bills: 5.54%

b. Standard Deviation

Large company stocks: 22.68

T-bills: 1.093

c1. Average risk premium: -0.77

c2. SD of risk premium: 23.14

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