Question

Suppose we have the following returns for large-company stocks and Treasury bills over a six year period:

Year	Large Company	US Treasury Bill
1	3.92	5.90
2	14.18	2.53
3	19.37	3.76
4	–14.31	7.16
5	–31.80	5.42
6	37.08	6.24

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 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.)

	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 deviation

%

Answer 1