Refer to Table 10.1 in the text on pages 301-303 and look at the period from 1973 through 1978.

a. Calculate the arithmetic average returns for large-company stocks and T-bills over this time period.

b. Calculate the standard deviation of the returns for large-company stocks and T-bills over this time period.

c. Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the arithmetic average risk premium over this period? What was the standard deviation of the risk premium over this period?

YEAR LARGE-COMPANY STOCKS LONG TERM GOVERNMENT BONDS U.S. TREASURY BILLS CONSUMER PRICE INDEX