P12-10 Calculating Real Returns and Risk Premiums [LO1]

Youve observed the following returns on Crash-n-Burn Computers stock over the past five years: 5 percent, -14 percent, 25 percent, 20 percent, and 17 percent. The average inflation rate over this period was 3.4 percent and the average T-bill rate was 4.85 percent.

Requirement 1:

What was the average real return on Crash-n-Burns stock? (Do not round intermediate calculations.)

(Click to select)7.66%6.96%7.31%14.36%6.62%

Requirement 2:

What was the average nominal risk premium on Crash-n-Burns stock? (Do not round intermediate calculations.)