Suppose we have the following returns for large-company stocks and Treasury bill
ID: 2777453 • Letter: S
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. (Do not round intermediate calculations. Enter your answers as a percent rounded 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. Enter your answers as a percent rounded 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. Enter your answer as a percent rounded 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. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Suppose we have the following returns for large-company stocks and Treasury bills over a six year period:
Explanation / Answer
a. Year Large Company US Treasury Bill 1 3.98 4.56 2 14.33 4.92 3 19.17 3.84 4 -14.51 6.98 5 -32 5.22 6 -37.41 5.36 TOTAL -46.44 30.88 Arithmetic Average (46.44)/6 30.88/6 -7.74 5.1466667 Average returns Large company stocks -7.74% T-bills 5.15% b., Year Large Company Dev. From Av.(-7.74) Var.=Dev^2 US Treasury Bill Dev. From Av.5.15 Var.=Dev^2 1 3.98 11.72 137.3584 4.56 -0.59 0.3481 2 14.33 22.07 487.0849 4.92 -0.23 0.0529 3 19.17 26.91 724.1481 3.84 -1.31 1.7161 4 -14.51 -6.77 45.8329 6.98 1.83 3.3489 5 -32 -24.26 588.5476 5.22 0.07 0.0049 6 -37.41 -29.67 880.3089 5.36 0.21 0.0441 Total 2863.2808 5.515 Std. deviation= Sq.rt.of variance 53.509633 2.348404 Standard deviation Large company stocks 53.51% T-bills 2.35% c-1 Year Large Company US Treasury Bill Observed risk premium 1 3.98 4.56 -0.58 2 14.33 4.92 9.41 3 19.17 3.84 15.33 4 -14.51 6.98 -21.49 5 -32 5.22 -37.22 6 -37.41 5.36 -42.77 Total -77.32 Average risk premium (-77.32/6) -12.88667 ie. -12.89 c-2 Year Observed risk premium Dev. From Av.(-12.89) Var.=Dev^2 1 -0.58 12.31 151.5361 2 9.41 22.3 497.29 3 15.33 28.22 796.3684 4 -21.49 -8.6 73.96 5 -37.22 -24.33 591.9489 6 -42.77 -29.88 892.8144 Total -77.32 Av.risk premium (-77.32/6) -12.8867 ie. -12.89 Total 3003.9178 Std. deviation= Sq.rt.of variance 54.808009 ie. 54.81%