Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock Market Return (8) 2016 2017 2018 2019 2020 32.70 12.10 -2.80 13.80 22.50 T-Bill Return (8) 0.08 0.08 0.08 0.26 0.28 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: Year Stock Market Return (8) 2016 2017 2018 2019 2020 32.70 12.10 -2.80 13.80 22.50 T-Bill Return (8) 0.08 0.08 0.08 0.26 0.28 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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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Subject:- finance
Transcribed Image Text:Assume these are the stock market and Treasury bill returns for a 5-year period:
Year Stock Market Return (8)
2016
2017
2018
2019
2020
32.70
12.10
-2.80
13.80
22.50
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
T-Bill Return
(8)
0.08
0.08
0.08
0.26
0.28
Year
2016
2017
2018
2019
2020
What was the risk premium on common stock in each year?
Note: Do not round intermediate calculations. Enter your answers a percent rounded to 2 decimal places. Negative values
should be entered with a negative sign.
Risk Premium
%
%
%
%
%
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