Assume these are the stock market and Treasury bill returns for a 5-year period: Stock Market Return () 31.7 T-Bill Return () Year 2013 2014 2015 2016 0.02 10.9 -1.6 13.0 21.3 0.02 0.02 0.20 0.80 2017 Required: a. What was the risk premium on common stock in each year? (Negative values should be entered with a negative sign.) 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
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Assume these are the stock market and Treasury bill returns for a 5-year period:

| Year | Stock Market Return (%) | T-Bill Return (%) |
|------|--------------------------|-------------------|
| 2013 | 31.7                     | 0.02              |
| 2014 | 10.9                     | 0.02              |
| 2015 | -1.6                     | 0.02              |
| 2016 | 13.0                     | 0.20              |
| 2017 | 21.3                     | 0.80              |

**Required:**

a. What was the risk premium on common stock in each year? (*Negative values should be entered with a negative sign.*)

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 average risk premium? (*Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.*)*
Transcribed Image Text:Assume these are the stock market and Treasury bill returns for a 5-year period: | Year | Stock Market Return (%) | T-Bill Return (%) | |------|--------------------------|-------------------| | 2013 | 31.7 | 0.02 | | 2014 | 10.9 | 0.02 | | 2015 | -1.6 | 0.02 | | 2016 | 13.0 | 0.20 | | 2017 | 21.3 | 0.80 | **Required:** a. What was the risk premium on common stock in each year? (*Negative values should be entered with a negative sign.*) 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 average risk premium? (*Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.*)*
### Average Risk Premium and Standard Deviation Calculation

**Section A: Average Risk Premium**

- **Prompt**: What was the average risk premium? 
  - **Instructions**: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
  
- **Input Box**: 
  - Label: Average risk premium
  - Measurement: Percentage (%)
  - Input Area: Blank field for user entry followed by a percent symbol

- **Navigation Buttons**:
  - Button: Required A
  - Button: Required C

---

**Section B: Standard Deviation of the Risk Premium**

- **Prompt**: What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)
  - **Instructions**: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

- **Input Box**: 
  - Label: Standard deviation
  - Measurement: Percentage (%)
  - Input Area: Blank field for user entry followed by a percent symbol

- **Navigation Buttons**:
  - Button: Required B
  - Button: Required C

### Explanation for Students

This exercise involves calculating the average risk premium and its standard deviation. Ensure precision in your calculations by not rounding intermediate results. Input your final answers as percentages rounded to two decimal places. Use the navigation buttons to access different requirements of the exercise.
Transcribed Image Text:### Average Risk Premium and Standard Deviation Calculation **Section A: Average Risk Premium** - **Prompt**: What was the average risk premium? - **Instructions**: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. - **Input Box**: - Label: Average risk premium - Measurement: Percentage (%) - Input Area: Blank field for user entry followed by a percent symbol - **Navigation Buttons**: - Button: Required A - Button: Required C --- **Section B: Standard Deviation of the Risk Premium** - **Prompt**: What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) - **Instructions**: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. - **Input Box**: - Label: Standard deviation - Measurement: Percentage (%) - Input Area: Blank field for user entry followed by a percent symbol - **Navigation Buttons**: - Button: Required B - Button: Required C ### Explanation for Students This exercise involves calculating the average risk premium and its standard deviation. Ensure precision in your calculations by not rounding intermediate results. Input your final answers as percentages rounded to two decimal places. Use the navigation buttons to access different requirements of the exercise.
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