17 value 1.00 points You did not receive credit for this question in a previous

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17 value 1.00 points You did not receive credit for this question in a previous attempt Problem 10-8 Risk Premiums [LO 2] Consider the following table for a period of six years Returns U.S Treasury Bills 7.53% 8.11 6.11 6.27 5.57 8.00 Large-Company Stocks Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 15.89% - 26.83 37.47 24.17 6.81 Requirement 1: 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 Large-company stock T-bills

Explanation / Answer

Answer1):

Arithmetic return for large corporation and t bills

= total return / number of returns

=18.09/6 = 3.015% is the arithmetic average for large corporation

T bills = 6.93%

Answer 2:

To compute the standard deviation :

Large corporation :

Standard deviation = SQRT of variance

variance = total /6 = 3010/6 = 501.67

S.D = SQRT (501.67) = 22.39

Standard deviation of T bills :

Variance = 5.854/6 = .9758

S.D = SQRT( .9758 )

= .9878

Answer 3) :

Standard deviation of risk premium would be :

Variance = 526/6 = 87.69

S.D = SQRT (87.69) = 9.36

Returns Difference Square -15.89 -18.905 357.399025 -26.83 -29.845 890.724025 37.47 34.455 1187.147025 24.17 21.155 447.534025 -7.64 -10.655 113.529025 6.81 3.795 14.402025 Average 3.015 Total 3010.73515

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