Question
You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 9 percent, -13 percent, 21 percent, 36 percent, and 20 percent.
You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 9 percent, -13 percent, 21 percent, 36 percent, and 20 percent. Suppose the average inflation rate over this period was 3.40 percent and the average T-bill rate over the period was 4.05 percent. What was the average real risk premium over this time period? (don't round calculations)
[Hint:] Step 1: Calculate the average real rate of return for Crash-n-Burn Computer. Step 2: Calculate the average real rate of return for the T-bill. Step 3: Subtract (average real rate of return for Crash-n-Burn Computer) - (average real rate of return for the T-bill).
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