1. You\'ve observed the following returns on Crash-n-Burn Computer\'s stock over
ID: 2711488 • Letter: 1
Question
1.
You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 6 percent, -14 percent, 12percent, 9 percent, and 11 percent. Suppose the average inflation rate over this time period was 2.8 percent and the average T-bill rate was 3.2 percent. Based on this information, what was the average nominal risk premium?
2.
Suppose a stock had an initial price of $76 per share, paid a dividend of $1.7 per share during the year, and had an ending share price of $91. Compute the percentage total return.
rev: 09_20_2012
21.97
18.35
27.63
23.07
You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 6 percent, -14 percent, 12percent, 9 percent, and 11 percent. Suppose the average inflation rate over this time period was 2.8 percent and the average T-bill rate was 3.2 percent. Based on this information, what was the average nominal risk premium?
Explanation / Answer
a)correct option is "B" - 1.6%
[Average retunr = (6+12+9+11-14)/5 = 4.8]
Risk premium= average return - Rf
= 4.8- 3.2 = 1.50
b)correct option is"A"
[Return= (91-76+1.7 )/ 76 = 16.7/ 76]
= .2197 or21.97%
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