Assume these are the stock market and Treasury bill returns for a 5-year period: IT Stock Market T-Bill Return Year Return (%) (%) 2013 33.70 0.13 2014 13.30 0.13 2015 -3.60 0.13 2016 14.70 0.08 2017 24.20 0.10 Required: a. What was the risk premium on common stock in each year? b. What was the average risk premium? c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)
Assume these are the stock market and Treasury bill returns for a 5-year period: IT Stock Market T-Bill Return Year Return (%) (%) 2013 33.70 0.13 2014 13.30 0.13 2015 -3.60 0.13 2016 14.70 0.08 2017 24.20 0.10 Required: a. What was the risk premium on common stock in each year? b. What was the average risk premium? c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Assume these are the stock market and Treasury bill returns for a 5-year period:
ITT
Stock Market T-Bill Return
Year
Return (%)
(%)
2013
33.70
0.13
2014
13.30
0.13
2015
-3.60
0.13
2016
14.70
0.08
2017
24.20
0.10
Required:
a. What was the risk premium on common stock in each year?
b. What was the average risk premium?
c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
What was the risk premium on common stock in each year? (Do not round intermediate calculations. Enter your answers as a
percent rounded to 2 decimal places.)
Year
Risk Premium
2013
%
2014
%
2015
%
2016
2017
%
Expert Solution
Step 1
The excess rate of the market return over the yield of government security is term as the risk premium.
A statistical measure that represents the variation in the return on the stock is term as the standard deviation.
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