Question: Refer to Table 12.1 in the text and look at the period from 1970 through 1975. a. Calculate the arithmetic average returns for large-company stocks

Refer to Table 12.1 in the text and look at the period from 1970 through 1975.

a. Calculate the arithmetic average returns for large-company stocks and T-bills over this period.

b. Calculate the standard deviation of the returns for large-company stocks and T-bills over this period.

c. 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? What was the standard deviation of the risk premium over this period?

d. Is it possible for the risk premium to be negative before an investment is undertaken? Can the risk premium be negative after the fact? Explain.

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