Consider the following table for a period of six years. Calculate the arithmetic

Question

Consider the following table for a period of six years. Calculate the arithmetic average returns for large-company stocks and T*bils over this time period. (Do not round Intermediate calculations. Enter your answors as a percentage rounded to 2 decimal places (e.g., 32.16).) Calculate the standard deviation of the returns for large-company stocxs and T-bills over this time period. (Do not round intermodiato calculations. Enter your answers as a percontago rounded to 2 decimal places (o.g.. 32.16).) Calculate the observed risk premium in each year for the large company stocks versus the T-bills. What was the arthmetic 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).) What was the standard devation of the flak prenium over this period? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g.. 32.16).)

Explanation / Answer

Working notes:

(a) Arithmetic average return = Sum of returns / 6

(b) Variance of Returns = [Sum of (Actual Returns - Average Returns)2] / 6

Standard deviation (SD) of Returns = (Variance of Returns)0.5

REQUIREMENT - 1

REQUIREMENT - 2

NOTE: First 2 questions are answered.

Year Stock Return T-Bill return (A) (B) 1973 -14.69 7.29 1974 -26.47 7.99 1975 37.23 5.87 1976 23.93 5.07 1977 -7.16 5.45 1978 6.57 7.64 Average Return = 3.24 6.55

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