You\'ve observed the following nominal returns on Regina Computer\'s stock over

Question

You've observed the following nominal returns on Regina Computer's stock over the past five years: 17 percent, –15 percent, 19 percent, 29 percent, and 10 percent. Suppose the average inflation rate over this period was 2.6 percent and the average T-bill rate over the period was 4.3 percent.

a. What was the average real return on Regina's stock? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Average Real return      %

b. What was the average nominal risk premium on Regina's stock? (Do not round intermediate calculations and round your answer to 1 decimal place. (e.g., 32.1))

Average nominal risk %

Explanation / Answer

Nominal returns on Regina Computer's stock over the past five years:=

17 percent

-15 percent

19 percent

29 percent

10 percent

Average of nominal return = nominal returns of n number of years / n

= [17 + (-15 )+ 19+ 29 + 10] / 5

= 12

average real return on Regina's stock = [1+ average of nominal return] / [ 1 + average inflation rate] - 1

= [ 1 + 0.12] / [1+ 1.026] - 1

= 9.16 %

Average nominal risk premium on Regina's stock = Average Nominal return - average risk free return

= 12 - 4.3 = 7.7 %

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

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