Please show all your work . Thank you You’ve observed the following returns on C

Question

Please show all your work . Thank you

You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 12 percent, –12 percent, 19 percent, 24 percent, and 10 percent. Suppose the average inflation rate over this period was 2.5 percent and the average T-bill rate over the period was 3.2 percent.

What was the average real risk-free rate over this time period? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Average real risk-free rate % What was the average real risk premium? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Average real risk premium %

Explanation / Answer

Average Return= sum of returns / no. of returns

                                = (12%-12%+19%+24%+10%)/5

                                = 10.60%

Average risk free rate = 3.20%

Average Inflation = 2.50%

Average real risk free rate = average risk free rate – average inflation

                                                    = 3.20%-2.50%

                                                    = 0.70%

Average real risk premium = Average return – average inflation

                                                     = 10.60% - 2.50%

                                                     = 8.10%

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