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Problem 10-8 Risk Premiums [LO 2] Consider the following table for a period of six years Year Year 1 Year 2 Year 3 Year 4

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Problem 10-8 Risk Premiums [LO 2] Consider the following table for a period of six years Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Returns Large-Company U.S. Stocks Treasury Bills - 15.99% 7.55% -26.86 8.12 37.49 6.13 24.19 6.37 - 7.68 5.58 6.83 8.03 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 T-bills 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 (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

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