Problem 10-11 Calculating Real Rates [LO 1] You%u2019ve observed the following r

Question

Problem 10-11 Calculating Real Rates [LO 1]

You%u2019ve observed the following returns on Staverosky Corporation%u2019s stock over the past five years: %u201327.6 percent, 15.4 percent, 33.8 percent, 3.2 percent, and 22.2 percent. The average inflation rate over this period was 3.32 percent and the average T-bill rate over the period was 4.3 percent.

What was the average real risk-free rate over this time period? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

What was the average real risk premium? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

You%u2019ve observed the following returns on Staverosky Corporation%u2019s stock over the past five years: %u201327.6 percent, 15.4 percent, 33.8 percent, 3.2 percent, and 22.2 percent. The average inflation rate over this period was 3.32 percent and the average T-bill rate over the period was 4.3 percent.

Explanation / Answer

(1).average risk-free rate adjusting for inflation=(27.6+15.4+33.8+3.2+22)/3.32=30.72

(2)average real risk premium=30.72-2=28.72

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