You\'ve observed the following returns on Crash-n-Burn Computer\'s stock over th

Question

You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 14 percent, -14 percent. 16 percent. 26 percent, and 10 percent. Suppose the average inflation rate over this period was 3.5 percent and the average T-bill rate over the period was 4.0 percent. What was the average real risk-free rate over this time period? (Round your answer to 2 decimal places, (e.g., 32.16)) What was the average real risk premium? (Round your answer to 2 decimal places, (e.g., 32.16))

Explanation / Answer

Total return = ( Capital gain + dividends )/Initial price = ( (74-86) + 1.8 )/86 = -0.1186 = -11.86%

Capital gain yield = Capital gain/Initial price = (74-86)/86 = -0.1395 = -13.95%

Dividend yield = Dividend/Initial price = 1.8/86 = 0.02093 = 2.093%

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