In Problem 9, suppose the average inflation rate over this period was 3.1 percent and the average T-bill rate over the period was 3.9 percent.

a. What was the average real return on the company’s stock?

b. What was the average nominal risk premium on the company’s stock?

Data From Problem 9

You’ve observed the following returns on Pine Computers’s stock over the past five years: 8 percent, −12 percent, 14 percent, 21 percent, and 16 percent.

a. What was the arithmetic average return on the company’s stock over this 5-year period?

b. What was the variance of the company’s returns over this period? The standard deviation?