Assume these are the stock market and Treasury bill returns for a 5-year period:
ID: 2796672 • Letter: A
Question
Assume these are the stock market and Treasury bill returns for a 5-year period:
a. What was the risk premium on common stock in each year? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
b. What was the average risk premium? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Year Stock Market Return (%) T-Bill Return (%) 2011 0.98 0.03 2012 16.06 0.05 2013 33.06 0.07 2014 12.71 0.05 2015 0.67 0.21a. What was the risk premium on common stock in each year? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
b. What was the average risk premium? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Explanation / Answer
Risk premium
2011:0.98-0.03-0.95%
2012:16.06-0.05=16.01%
2013:33.06-0.07=32.99%
2014:12.71-0.05=12.66%
2015:0.67-0.21=0.46%
Average risk premium=(0.95%+16.01%+32.99%+12.66%+0.46%)/5=0.12614%
Standard deviaiton of risk premium=sqrt(((0.95%-0.12614%)^2+(16.01%-0.12614%)^2+(32.99%-0.12614%)^2+(12.66%-0.12614%)^2+(0.46%-0.12614%)^2)/5)=17.2639%