Assume these are the stock market and Treasury bill returns for a 5-year period: Stock Market T-Bill Return Return (%) Year (%) 2013 35.40 0.19 2014 14.80 0.19 2015 -4.70 0.19 2016 16.20 0.06 2017 25.40 0.08 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
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Assume these are the stock market and Treasury bill returns for a 5-year period:
Stock Market T-Bill Return
Return (%)
Year
(%)
2013
35.40
0.19
2014
14.80
0.19
2015
-4.70
0.19
2016
16.20
0.06
2017
25.40
0.08
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.)
Transcribed Image Text:Assume these are the stock market and Treasury bill returns for a 5-year period: Stock Market T-Bill Return Return (%) Year (%) 2013 35.40 0.19 2014 14.80 0.19 2015 -4.70 0.19 2016 16.20 0.06 2017 25.40 0.08 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.)
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