Question
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14 Safar File Edit View History Bookmarks Window Help 4) (87 Sun 10:21 AM Q. Chapter 10 Quiz Chttp:Iezto.nhecloud.mcgraw-hill.com/hm.tp Reader Q Google Go m EEEE App Google Maps wikipedia News 745 YouTube Popular You've observed The Following R Chapter 10 Quiz McGraw-Hill Connect l Student P you bought one of great white sh Rodney Johnson 301: Principles of Finance (SPRING 2013): 301: Sec FINANCE Chapter 10 Quiz instructions I help submit assignment prev Question #1 0 (of 12) next save & exit 10 You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 2 percent, -14 percent, 26 percent, 20 percent, and 14 percent. The average inflation rate over this period was 3.2 percent and the average T-bill rate was 3.95 percent. Requirement 1 What was the average real return on Crash-n-Burn's stock? (Do not round intermediate calculations Click to selec Requirement 2: What was the average nominal risk premium on Crash-n-Burn's stock? (Do not round intermediate calculations.) Click to selec book & resources
Explanation / Answer
Sorry.. Pl rate this answer...Above is wrong values.
Avge Reqturn = (2%-14%+20%+26%+14%)/5 = 9.60%
r = IP + DRP +RP
Where
r = return on a security 9.60%
IP = inflation premium = 3.2%
DRP = default risk premium =3.96%
RP = risk premium =?
Putting values
9.60% = 3.2%+3.96%+RP
So RP =9.60% - 7.16% = 2.44%