Refer to Table 10.1 in the text and look at the period from 1973 through 1978. a.
Question:
a. Calculate the arithmetic average returns for large-company stocks and T-bills over this time period.
b. Calculate the standard deviation of the returns for large-company stocks and T-bills over this time period.
c. Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the arithmetic average risk premium over this period? What was the standard deviation of the risk premium over this period?
Table 10.1
LARGE-COMPANY STOCKS LONG-TERM GOVERNMENT BONDS U.S. TREASURY CONSUMER YEAR BILLS PRICE INDEX 1.70 1.61 2.68 3.39 1.55 2.38 1.88 1997 1998 1999 33.36 28.58 21.04 一9.10 11.89 -22.10 28.68 10.88 4.91 15.79 5.49 -37.00 26.46 17.70 19.22 -1276 22.16 5.30 14.08 1.62 10.34 10.35 0.28 10.85 19.24 一9.49 5.19 4.86 4.80 5.98 3.33 1.61 1.03 1.43 3.30 4.97 4.52 1.24 0.15 2001 2002 3.42 2.54 4.08 2006 2007 2008 2009 2.72
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Corporate Finance Core Principles and Applications
ISBN: 978-0077905200
3rd edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford
Related Video
Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.
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