Problem 10-8 Risk Premiums [LO 2]

Consider the following table for a period of six years.

Large-Company Stocks US Treasury Bills

Year 1 14.89 % 7.33 %

Year 2 26.53 8.01

Year 3 37.27 5.91

Year 4 23.97 5.27

Year 5 7.24 5.47

Year 6 6.61 7.70

Requirement 1:

Calculate the arithmetic average returns for large-company stocks and T-bills over this time period. (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)

Arithmetic average returns

Large-company stock	3.215 %
T-bills	6.615 %

Requirement 2:

Calculate the standard deviation of the returns for large-company stocks and T-bills over this time period.(Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)

Standard deviation

Large-company stock???

T-bills??????

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 round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Risk premium: -3.42%

b)	What was the standard deviation of the risk premium over this period? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Risk premium standard deviation:??????? Whats the answer to the 2nd and 4th questions???