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Problem 12-8 Risk Premiums [LO2, 3] Suppose we have the following returns for large-company stocks and Treasury bills over a six-year period: Year Large Company

Problem 12-8 Risk Premiums [LO2, 3] Suppose we have the following returns for large-company stocks and Treasury bills over a six-year period: Year Large Company US Treasury Bill 1 3.67% 4.69% 2 14.32 3.55 3 19.11 4.14 4 14.57 5.89 5 32.06 5.16 6 37.35 5.33 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.) 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.) c-1. Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the 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.) 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.)

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