Assume these are the stock market and Treasury bill returns for a 5-year period: T-Bill Return Year Stock Market Return (%) (%) 2016 34.90 0.18 2017 14.70 0.18 2018 -4.60 0.18 2019 16.00 0.05 2020 25.00 0.07 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: T-Bill Return Year Stock Market Return (%) (%) 2016 34.90 0.18 2017 14.70 0.18 2018 -4.60 0.18 2019 16.00 0.05 2020 25.00 0.07 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:
T-Bill
Return
Year Stock Market Return (%)
(%)
2016
34.90
0.18
2017
14.70
0.18
2018
-4.60
0.18
2019
16.00
0.05
2020
25.00
0.07
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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