Suppose we have the following returns for large-company stocks and Treasury bill
ID: 2795816 • Letter: S
Question
Suppose we have the following returns for large-company stocks and Treasury bills over a six year period Year 2 4 Large CompanyUS Treasury Bill 4.00 14.49 19.33 -14.35 -31.84 37.04 4.62 4.96 3.88 7.00 5.38 6.43 a. 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.) Average returns Large company stocks T-bills b. Calculate the standard deviation of the returns for la rge-comp any 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.) Standard deviation Large company stocks T-bills c-1 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.) Average risk premium c-2 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.) Standard deviationExplanation / Answer
YEAR
RM
RJ
RM-Rm
RJ-Rj
RJ-RM
Rm-rm(square)
RJ-Rj(square)
RJ-RM(SQUARE)
1
4.62
4
-0.758
-0.778
-0.62
0.574564
0.605284
0.3844
2
4.96
14.49
-0.418
9.712
9.53
0.174724
94.32294
90.8209
3
3.88
19.33
-1.498
14.552
15.45
2.244004
211.7607
238.7025
4
7
-14.35
1.622
-19.128
-21.35
2.630884
365.8804
455.8225
5
5.38
-31.84
0.002
-36.618
-37.22
0
1340.878
1385.328
6
6.43
37.04
1.052
32.262
30.61
1.106704
1040.837
936.9721
32.27
28.67
-3.6
6.73088
3054.284
3108.031
Answer A
Average of t bill=32.27/6=5.378
Average of long company stock=28.67/6=4.778
Answer B
SD OF T BILL=square root of( 6.73088/61.12181=1.059
SD of large company=(3054.284/6)183.25=13.536
Answer c
Average risk premium=-3.6/6=-.06
Answer d=square root of (3108.031/6)=22.75
YEAR
RM
RJ
RM-Rm
RJ-Rj
RJ-RM
Rm-rm(square)
RJ-Rj(square)
RJ-RM(SQUARE)
1
4.62
4
-0.758
-0.778
-0.62
0.574564
0.605284
0.3844
2
4.96
14.49
-0.418
9.712
9.53
0.174724
94.32294
90.8209
3
3.88
19.33
-1.498
14.552
15.45
2.244004
211.7607
238.7025
4
7
-14.35
1.622
-19.128
-21.35
2.630884
365.8804
455.8225
5
5.38
-31.84
0.002
-36.618
-37.22
0
1340.878
1385.328
6
6.43
37.04
1.052
32.262
30.61
1.106704
1040.837
936.9721
32.27
28.67
-3.6
6.73088
3054.284
3108.031
Answer A
Average of t bill=32.27/6=5.378
Average of long company stock=28.67/6=4.778
Answer B
SD OF T BILL=square root of( 6.73088/61.12181=1.059
SD of large company=(3054.284/6)183.25=13.536
Answer c
Average risk premium=-3.6/6=-.06
Answer d=square root of (3108.031/6)=22.75