Calculate the arithmetic average returns for large-company stocks and T-bills ov

Question

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.)

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.)

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.)

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.)

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

Explanation / Answer

Solution:

Average Return = Sum of Returns / Number of years Year Company Stock 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% Sum 28% 31% Number of years 6 6 Average Return = 4.74% 5.17%

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