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Consider the following rates of return: Year Large-Company Stocks US Treasury Bills 1 3.99 % 6.65 % 2 14.50 4.46 3 19.39 4.33 4 14.29

Consider the following rates of return:

Year Large-Company Stocks US Treasury Bills

1 3.99 % 6.65 %

2 14.50 4.46

3 19.39 4.33

4 14.29 7.34

5 31.78 5.44

6 37.10 6.45

a. Calculate the arithmetic average returns for large-company stocks and T-bills over this period. (Do not round intermediate calculations and enter your answers as a percent rounded 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 enter your answers as a percent rounded 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 arithmetic average risk premium over this period? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded 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 enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Standard deviation ______ %

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