3.

value: 8.33 points

Consider the following information onlarge-company stocks from 1926 through 2008.

Series	Arithmetic Mean
Small-company stocks	16.4	%
Large-company stocks	11.7
Long-term corporate bonds	6.2
Long-term government bonds	6.1
Intermediate-term government bonds	5.6
U.S. Treasury bills	3.8
Inflation	3.1

Required:

(a)	What was the arithmetic average annual return in nominal terms? (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

Nominal return

%

(b)	What was the arithmetic average annual return in real terms? (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

Real return

%

4.

value: 8.33 points

Consider the following table for the period from 1973 through 1978.

	Returns
Years	Large-Company Stocks		U.S. Treasury Bills
1973	?14.69	%	7.29	%
1974	?26.47		7.99
1975	37.23		5.87
1976	23.93		5.07
1977	?7.16		5.45
1978	6.57		7.64

Requirement 1:

Calculate the arithmetic average returns for large-company stocks and T-bills over this period. (Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16))

Large company stock average return	%
T-bills average return	%

Requirement 2:

Calculate the standard deviation of the returns for large-company stocks and T-bills over this period. (Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16))

Large company stock average return	%
T-bills average return	%

Requirement 3:

Calculate the observed risk premium in each year for the large-company stocks versus the T-bills.

(a)	What was the arithmetic average risk premium over this period? (Negative amount should be indicated by a minus sign. Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

Risk premium

%

(b)	What was the standard deviation of the risk premium over this period? (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

Risk premium

%

5.

value: 8.33 points

You