Question
In: Finance
Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock...
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.)
Solutions
Expert Solution
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.
jeff jeffy answered 2 years agoRelated Solutions
Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock...
Assume these are the stock market and Treasury bill returns for
a 5-year period:
Year
Stock Market Return (%)
T-Bill Return (%)
2013
34.20
0.14
2014
13.90
0.14
2015
−3.80
0.14
2016
14.80
0.09
2017
24.30
0.11
Required:
a. What was the risk premium on common stock in
each year?
b. What was the average risk premium?
c. What was the standard deviation of the risk
premium? (Ignore that the estimation is from a sample of data.)
Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock...
Assume these are the stock market and Treasury bill returns for
a 5-year period:
Year
Stock Market Return
T-Bill Return
Year 1
−
35.73
3.10
Year 2
30.10
1.50
Year 3
15.56
.21
Year 4
2.38
.06
Year 5
18.26
.08
a.
What was the risk premium on common stock in each year?
(Negative amounts should be indicated by a minus sign. Do
not round intermediate calculations. Enter your answers as a
percent rounded to 2 decimal places.)
Year
Risk...
Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock...
Assume these are the stock market and Treasury bill returns for
a 5-year period:
Year
Stock Market Return (%)
T-Bill Return (%)
2011
−36.53
2.10
2012
29.10
0.60
2013
16.46
0.16
2014
1.58
0.08
2015
16.86
0.10
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...
Assume these were the inflation rates and stock market and Treasury bill returns between 1929 and...
Assume these were the inflation rates and stock market and
Treasury bill returns between 1929 and 1933:
Year
Inflation
Stock Market Return T-Bill Return
1929
.4
–16.0
6.0
1930
–4.4
–27.2 3.0
1931
–9.1
–41.9 1.2
1932 –11.1 –8.5 .9
1933
1.1
63.6 .3
a. What was the real return on the stock market in each year?
(Negative answers should be indicated by a minus sign. Do not round
intermediate calculations. Enter...
Assume these were the inflation rates and stock market and Treasury bill returns between 1929 and...
Assume these were the inflation rates and stock market and
Treasury bill returns between 1929 and 1933:
Year
Inflation
Stock Market Return
T-Bill Return
1929
.2
–11.9
5.0
1930
–5.8
–29.2
3.2
1931
–9.2
–42.3
1.6
1932
–13.3
–6.7
.7
1933
.8
59.1
.5
a. What was the real return on the stock market
in each year? (Negative answers should be indicated by a
minus sign. Do not round intermediate calculations. Enter your
answers as a percent rounded to 2...
Suppose we have the following Treasury bill returns and inflation rates over an eight-year period: Year...
Suppose we have the following Treasury bill returns and
inflation rates over an eight-year period:
Year
Treasury Bills
Inflation
1
8.11%
9.83%
2
8.92
13.36
3
6.74
7.87
4
5.88
5.61
5
6.32
7.63
6
8.57
10.01
7
11.55
14.32
8
13.21
13.77
a.
Calculate the average return for Treasury bills and the average
annual inflation rate...
Suppose we have the following Treasury bill returns and inflation rates over an eight year period:...
Suppose we have the following Treasury bill returns and
inflation rates over an eight year period:
Year
Treasury
Bills
Inflation
1
9.23%
11.07%
2
10.10
14.66
3
7.84
9.03
4
6.92
6.59
5
7.42
8.79
6
9.73
11.23
7
12.57
15.40
8
14.35
15.20
a.
Calculate the average return for Treasury bills and the average
annual inflation...
Suppose we have the following Treasury bill returns and inflation rates over an eight year period:...
Suppose we have the following Treasury bill returns and
inflation rates over an eight year period:
Year
Treasury
Bills
Inflation
1
7.37%
8.79%
2
8.07
12.42
3
5.95
7.02
4
5.15
4.94
5
5.53
6.78
6
7.72
9.10
7
10.64
13.37
8
12.18
12.60
Calculate the standard deviation of Treasury bill returns and
inflation over this period. (Do...
Suppose that the Treasury bill rate is 5% rather than 2%. Assume the expected return on...
Suppose that the Treasury bill rate is 5% rather than 2%. Assume
the expected return on the market stays at 9%. Use the following
information. Stock Beta (β) United States Steel 3.10 Amazon 1.36
Southwest Airlines 1.24 The Travelers Companies 1.17 Tesla 0.99
ExxonMobil 0.93 Johnson & Johnson 0.92 Coca-Cola 0.59
Consolidated Edison 0.16 Newmont 0.10 Calculate the expected return
from Johnson & Johnson. (Do not round intermediate
calculations. Enter your answers as a percent rounded to 2 decimal
places.)...
TeachMeFinance has a beta of 0.92. The Treasury bill rate is 5 percent. The market risk...
TeachMeFinance has a beta of 0.92. The Treasury bill rate is 5
percent. The market risk premium is 10 percent. The company paid a
$1.8 per share dividend a couple of days ago, and it is planning to
increase its dividends at a 7 percent annual rate indefinitely. You
also know that the company's shares of stock can now be purchased
for $34 per share. Based on the above information, what is your
best estimate of TeachMeFinance's cost of equity?...
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