Question
1970 3.94% 18.92% 6.50% 5.57% 1971 14.30% 11.24% 4.36% 3.27% 1972 18.99% 2.39% 4.23% 3.41% 1973 -14.69% 3.30% 7.29% 8.71% 1974 -26.47% 4.00% 7.99% 12.34%
| 1970 | 3.94% | 18.92% | 6.50% | 5.57% |
| 1971 | 14.30% | 11.24% | 4.36% | 3.27% |
| 1972 | 18.99% | 2.39% | 4.23% | 3.41% |
| 1973 | -14.69% | 3.30% | 7.29% | 8.71% |
| 1974 | -26.47% | 4.00% | 7.99% | 12.34% |
| 1975 | 37.23% | 5.52% | 5.87% | 6.94% |
Refer to Table and look at the period from 1970 through 1975.
a. Calculate the 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 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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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
