Consider the following table for a period of six years. Returns Year Large-Compa
ID: 2759364 • Letter: C
Question
Consider the following table for a period of six years. Returns Year Large-Company Stocks U.S. Treasury Bills Year 1 – 16.09 % 7.57 % Year 2 – 26.89 8.13 Year 3 37.51 6.15 Year 4 24.21 6.47 Year 5 – 7.72 5.59 Year 6 6.85 8.06 Requirement 1: Calculate the arithmetic average returns for large-company stocks and T-bills over this time period. (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Arithmetic average returns Large-company stock % T-bills % Requirement 2: Calculate the standard deviation of the returns for large-company stocks and T-bills over this time period. (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Standard deviation Large-company stock % T-bills % Requirement 3: 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? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Risk premium % What was the standard deviation of the risk premium over this period? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Risk premium standard deviation %Explanation / Answer
Solution:
1.
2.
3.
Average Return = Sum of Returns / Number of years Year Company Stock US Treasury Bill 1 16.09% 7.57% 2 26.89% 8.13% 3 37.51% 6.15% 4 24.21% 6.47% 5 7.72% 5.59% 6 6.85% 8.06% Sum 119% 42% Number of years 6 6 Average Return = 19.88% 7.00%