#2

Suppose we have the following returns for large-company stocks and Treasury bills over a six year period:

Year	Large Company	US Treasury Bill
1	3.67	4.69
2	14.32	3.55
3	19.11	4.14
4	14.57	5.89
5	32.06	5.16
6	37.35	5.33

a.	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))

	Average returns
Large company stocks	%
T-bills	%

b.	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))

	Standard deviation
Large company stocks	%
T-bills	%

c-1

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))

Average risk premium

%

c-2	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))

Standard deviation

%

#3

Youve observed the following returns on Crash-n-Burn Computers stock over the past five years: 10 percent, 11 percent, 18 percent, 19 percent, and 10 percent.

a.	What was the arithmetic average return on Crash-n-Burns stock over this five-year period? (Round your answer to 1 decimal place. (e.g., 32.1))

Average return 9.2

%

b-1	What was the variance of Crash-n-Burns returns over this period? (Round your answer to 5 decimal places. (e.g., 32.16161))

Variance

b-2	What was the standard deviation of Crash-n-Burns returns over this period? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Standard deviation

%

#5

You bought one of Great White Shark Repellant Co.s 6.8 percent coupon bonds one year ago for $1,054. These bonds make annual payments and mature 15 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 5 percent.

If the inflation rate was 3.6 percent over the past year, what was your total real return on investment? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Total real return

%