Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 4.00 4.62
2 14.49 4.96
3 19.33 3.88
4 14.35 7.00
5 31.84 5.38
6 37.04 6.43

a.

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

Standard deviation %

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Conspiracy Theories And Unpopular Culture

Authors: Isaac Weishaupt

1st Edition

979-8633825282

More Books

Students also viewed these Finance questions

Question

What is the purpose of writing a social venture plan?

Answered: 1 week ago