Problem 10-8 Risk Premiums [LO 2] Consider the following table for a period of s

Question

Problem 10-8 Risk Premiums [LO 2]

Consider the following table for a period of six years.

Large-Company Stocks US Treasury Bills

Year 1 – 14.89 % 7.33 %

Year 2 – 26.53 8.01

Year 3 37.27 5.91

Year 4 23.97 5.27

Year 5 – 7.24 5.47

Year 6 6.61 7.70

Calculate the arithmetic average returns for large-company stocks and T-bills over this time period. (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)

Arithmetic average returns

Calculate the standard deviation of the returns for large-company stocks and T-bills over this time period.(Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)

Standard deviation

Large-company stock???

T-bills??????

(a) What was the arithmetic 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 percentage rounded to 2 decimal places (e.g., 32.16).)

Risk premium: -3.42%

What was the standard deviation of the risk premium over this period? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Risk premium standard deviation:???????

Whats the answer to the 2nd and 4th questions???

Calculate the arithmetic average returns for large-company stocks and T-bills over this time period. (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)

Arithmetic average returns

Explanation / Answer

Large-Company Stocks US Treasury Bills Risk premium Year 1 -14.89% 7.33% -22.22% Year 2 -26.53% 8.01% -34.54% Year 3 37.27% 5.91% 31.36% Year 4 23.97% 5.27% 18.70% Year 5 -7.24% 5.47% -12.71% Year 6 6.61% 7.70% -1.09% 19.19% 39.69% -20.50% Arithmetic average returns 19.19%/6 36.29/6 =-20.5/6 3.20% 6.62% -3.42% Large-Company Stocks US Treasury Bills Risk premium Large-Company Stocks US Treasury Bills Risk premium (r-r)^2 (r-r)^2 Year 1 -14.89% 7.33% -22.22% 0.03271878 0.0000511 0.0353565 Year 2 -26.53% 8.01% -34.54% 0.08837738 0.0001946 0.0968662 Year 3 37.27% 5.91% 31.36% 0.116087847 0.0000497 0.1209417 Year 4 23.97% 5.27% 18.70% 0.043146214 0.0001809 0.0489147 Year 5 -7.24% 5.47% -12.71% 0.01089588 0.0001311 0.0086366 Year 6 6.61% 7.70% -1.09% 0.001163947 0.0001177 0.0005413 0.29239 0.00073 0.31126 Standard deviation Large-Company Stocks US Treasury Bills Risk premium variance *1/5 0.05847801 0.000145031 0.062251403 Standard deviation Square root 24.18% 1.20% 24.95%

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.