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))

%

Year Large Company US Treasury Bill 1    3.97 6.59 2   14.34 4.42 3   19.23 4.29 4 –14.45 7.32 5 –31.94 5.28 6   37.47 5.38

Explanation / Answer

Year Large Company US Treasury Bill Risk Premium 1 3.97% 6.59% -2.62% 2 14.34% 4.42% 9.92% 3 19.23% 4.29% 14.94% 4 -14.45% 7.32% -21.77% 5 -31.94% 5.28% -37.22% 6 37.47% 5.38% 32.09% Average 4.77% 5.55% -0.78% Standard deviation 22.68% 1.09% 23.14%

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