Suppose we have the following returns for large-company stocks and Treasury bills over a six-year period: Large- US Treasury Year Company bills stocks 1234 3.90% 5.84% 14.47 2.49 19.21 14 47 3.72 744
Suppose we have the following returns for large-company stocks and Treasury bills over a six-year period: Large- US Treasury Year Company bills stocks 1234 3.90% 5.84% 14.47 2.49 19.21 14 47 3.72 744
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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Question
Am. 112.
Transcribed Image Text:Suppose we have the following returns for large-company stocks and Treasury bills over
a six-year period:
Year
Large-
Company
US Treasury
bills
stocks
123456
3.90%
5.84%
14.47
2.49
19.21
3.72
-14.47
7.14
5.26
6.39
a.
-31.96
37.45
Calculate the arithmetic average returns for large-company stocks and T-bills over
this period. (Do not round intermediate calculations and enter your answers as a
percent rounded to 2 decimal places, e.g., 32.16.)
b. Calculate the standard deviation of the returns for large-company stocks and T-bills
over this period. (Do not round intermediate calculations and enter your answers
as a percent rounded to 2 decimal places, e.g., 32.16.)
c-1. Calculate the observed risk premium in each year for the large-company stocks
versus the T-bills. What was the average risk premium over this period? (A negative
answer should be indicated by a minus sign. Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal places,
e.g., 32.16.)
c-2. Calculate the observed risk premium in each year for the large-company stocks
versus the T-bills. What was the standard deviation of the risk premium over this
period? (Do not round intermediate calculations and enter your answer as a
percent rounded to 2 decimal places, e.g., 32.16.)
a. Large-company stocks
4.77%
a. T-bills
5.14 %
b. Large-company stocks
24.86 %
b. T-bills
c-1. Average risk premium
c-2. Standard deviation
1.74 %
-0.67%
23.43 %
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