Question

Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock Market Return (%) T-Bill Return (%) 2011 ?34.33 4.30 2012 31.70 0.70 2013 14.56 0.27 2014 3.58 0.04 2015 19.46 0.06

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? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

The following are the data inputs in spreadsheet:

The following are the obtained results in spreadsheet:

Note: Stock market return in 2011 is taken as negative as there is question mark, so calculated answer is based on negative value in year 2011. However, same can be calculated using positive value, answer would be different if you put positive value instead of negative.