CH 12 Question 2 2. 10.00 ponts value Suppose we have the following returns for

Question

CH 12 Question 2 2. 10.00 ponts value Suppose we have the following returns for large-company stocks and Treasury bills over a six year period US Treasury Bill Large Company 3.97 14.34 19.23 -14.45 -31.94 37.47 Year 6.59 4 42 4.29 7.32 5.28 5.38 a. Calculate the arithmetic average returns for large-company stocks and T-bills over this period (Round your answers to 2 decimal places. (e.g., 32.16)) Average returns Large company stocks T-bills 4771 % 555 % b. Calculate the standard deviation of the returns for large-company stocks and T-bils over this period Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g.. 32.16)) Standard deviation Large company stocks T-bills c-1 Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the average risk premium over this period? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Average risk premium c-2 Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the standard deviation of the risk premium over this period? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g. 32.16)) Standard deviation Hints Reterences eBook & Resources

Explanation / Answer

Year Large company stock US treasury bill 1 3.97 6.59 2 14.34 4.42 3 19.23 4.29 4 -14.45 7.32 5 -31.94 5.28 6 37.47 5.38 a Arithmatic average Using average formula Large company stock 4.77 US treasury bill 5.55 b Standard deviation Large company stock 24.85 US treasury bill 1.20 c-1 Year Risk premium 1 -2.62 2 9.92 3 14.94 4 -21.77 5 -37.22 6 32.09 Risk premium is difference of return on large stock and US treasury each year Average risk premium -0.78 Average of all the risk premium values in each year c-2 Standard deviation of risk premium 25.35 Using std dev formula in excel on all the risk premium values

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