*****Just need help with part A You’ve observed the following returns on Doysche
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Question
*****Just need help with part A
You’ve observed the following returns on Doyscher Corporation’s stock over the past five years: –29.1 percent, 16.4 percent, 35.8 percent, 3.7 percent, and 22.7 percent. The average inflation rate over this period was 3.37 percent and the average T-bill rate over the period was 4.3 percent.
What was the average real return on the stock? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
What was the average nominal risk premium on the stock? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
*****Just need help with part A
You’ve observed the following returns on Doyscher Corporation’s stock over the past five years: –29.1 percent, 16.4 percent, 35.8 percent, 3.7 percent, and 22.7 percent. The average inflation rate over this period was 3.37 percent and the average T-bill rate over the period was 4.3 percent.
Explanation / Answer
Solution:
Nominal Average return = Sum of returns / Number of year Year Retun 1 -29.10% 2 16.40% 3 35.80% 4 3.70% 5 22.70% Sum of returns 49.50% Number of years 500.00% Nominal average return 9.90% Average real return = [( 1 + nominal return) / ( 1 - inflation rate ) ] - 1 Nominal average return 9.90% Inflation rate = 3.37% Average real return = ( 1 + 9.9%)/(1+3.37%) - 1 6.32%Related Questions
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