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You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past 5 years: 2%, -8%, 24%, 19%, and 12%. b. Suppose the average T-bill rate over this period was 4.2%. What was the average risk premium on the stock? I will also attach an image of my work. It's in the top right with a heading of Risk Premium.

You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past 5 years: 2%, -8%, 24%, 19%, and 12%. b. Suppose the average T-bill rate over this period was 4.2%. What was the average risk premium on the stock? I will also attach an image of my work. It's in the top right with a heading of Risk Premium.

Essentials Of Investments
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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Please help me with this problem. I have done it by myself too, but I just want to know that if -8% is the smallest number, do we subtract by -8%, right? 

You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past 5 years: 2%, -8%, 24%, 19%, and 12%.

b. Suppose the average T-bill rate over this period was 4.2%. What was the average risk premium on the stock?

I will also attach an image of my work. It's in the top right with a heading of Risk Premium. Thank You

# Investment Returns and Risk Analysis ## Problem 4 ### Observed Returns on Crash-n-Burn Computer's Stock **Past 5 Years Returns:** - Year 1: 2% - Year 2: -8% - Year 3: 24% - Year 4: 19% - Year 5: 12% **Question (a): What was the average return and standard deviation of returns on Crash-n-Burn's stock over this 5-year period?** - **Average Return:** 10% - **Standard Deviation:** 12.93% **Question (b):** Suppose the average T-bill rate over this period was 4.2%. What was the average risk premium on the stock? **Risk Premiums by Year:** - Year 1: 10% - Year 2: 0% - Year 3: 32% - Year 4: 27% - Year 5: 20% ## Problem 5 ### Find Excess Returns for the Following Investments | **Investment** | **Average Return** | **Excess Return** | |-------------------|--------------------|-------------------| | Small Stocks | 23.80% | 19% | | S&P 500 | 13.10% | 9% | | Corporate Bonds | 7.50% | 3% | | Treasure Bonds | 6.80% | 2% | | Treasury Bills | 4.90% | 0% | **Explanation of Risk Premiums:** The risk premium represents the return over the risk-free rate, which in this data is the average return over T-bills at 4.2%. The excess returns indicate how much more each investment returned compared to the risk-free rate. **Note:** The data table provides a detailed yearly breakdown of returns and the subsequent calculation of the risk premiums, aiding in understanding stock performance relative to a generally safe investment, such as T-bills.
Transcribed Image Text:# Investment Returns and Risk Analysis ## Problem 4 ### Observed Returns on Crash-n-Burn Computer's Stock **Past 5 Years Returns:** - Year 1: 2% - Year 2: -8% - Year 3: 24% - Year 4: 19% - Year 5: 12% **Question (a): What was the average return and standard deviation of returns on Crash-n-Burn's stock over this 5-year period?** - **Average Return:** 10% - **Standard Deviation:** 12.93% **Question (b):** Suppose the average T-bill rate over this period was 4.2%. What was the average risk premium on the stock? **Risk Premiums by Year:** - Year 1: 10% - Year 2: 0% - Year 3: 32% - Year 4: 27% - Year 5: 20% ## Problem 5 ### Find Excess Returns for the Following Investments | **Investment** | **Average Return** | **Excess Return** | |-------------------|--------------------|-------------------| | Small Stocks | 23.80% | 19% | | S&P 500 | 13.10% | 9% | | Corporate Bonds | 7.50% | 3% | | Treasure Bonds | 6.80% | 2% | | Treasury Bills | 4.90% | 0% | **Explanation of Risk Premiums:** The risk premium represents the return over the risk-free rate, which in this data is the average return over T-bills at 4.2%. The excess returns indicate how much more each investment returned compared to the risk-free rate. **Note:** The data table provides a detailed yearly breakdown of returns and the subsequent calculation of the risk premiums, aiding in understanding stock performance relative to a generally safe investment, such as T-bills.
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