Suppose we have the following returns for large-company stocks and Treasury bill

Question

Suppose we have the following returns for large-company stocks and Treasury bills over a six year period:

Calculate the arithmetic average returns for large-company stocks and T-bills over this period. (Round your answers to 2 decimal places. (e.g., 32.16))

Calculate the standard deviation of the returns for large-company stocks and T-bills over this period. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

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 and round your final answer to 2 decimal places. (e.g., 32.16))

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 round your final answer to 2 decimal places. (e.g., 32.16))

Year Large Company US Treasury Bill 1    3.69 4.75 2   14.48 3.59 3   19.27 4.18 4 –14.41 5.91 5 –31.90 5.32 6   37.51 6.41

Explanation / Answer

a. Large Company Stocks : 4.77%

T Bills: 5.03%

b. Large Company Stocks : 22.69

T Bills: 0.97

C1. Average risk premium: -0.25

C2. Standard deviation: 22.77

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