PLEASE Help!! If you can provide work so I can understand, that would be much ap

Question

PLEASE Help!! If you can provide work so I can understand, that would be much appreciated! :)

You've observed the following returns on Crash-n-Bum Computer's stock over the past five years: 14 percent, -14 percent, 16 percent, 26 percent, and 10 percent. Suppose the average inflation rate over this period was 3.5 percent and the average T-bill rate over the period was 4.0 percent. What was the average real risk-free rate over this time period? (Round your answer to 2 decimal places, (e.g., 32.16)) What was the average real risk premium? (Round your answer to 2 decimal places, (e.g., 32.16))

Explanation / Answer

1 average real risk-free rate using the Fisher equation

(1 +R) = (1 +r)(1 +h)

average real risk-free rate =1.04/1.035 -1 =.48%

2

average real risk premium =6.67%-.48% = 6.19%

1 14% 2 -14% 3 16% 4 26% 5 10% Total 52% Average return or Nominal return =52%/5 =10.4% 0.104

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