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: Year Large Company US Treasury Bill 1 3.97 4.53 2 14.45 4.90 3 19.09 3.82 4 –14.59 6.97 5 –32.08 4.96 6 37.34 6.35 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 % Hints References eBook & Resources Hint #1 Check my work

Explanation / Answer

Year large company stock treasury bill Risk Premium 1 3.97 4.53 -0.56 2 14.45 4.9 9.55 3 19.09 3.82 15.27 4 -14.59 6.97 -21.56 5 -32.08 4.96 -37.04 6 37.34 6.35 30.99 Average 4.696667 5.255 percent standard deviation 22.70429 1.075341 percent Average of risk Premium -0.55833 percent Standard deviation of risk premium 22.80349 percent

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