Suppose we have the following returns for large-company stocks and Treasury bi

    0

    Suppose we have the following returns for large-company stocks and Treasury bills over a six year period:

    Year: 1 Large Company: 3.96 U.S. Treasury Bill: 4.50

    Year: 2 Large Company: 14.12 U.S. Treasury Bill: 4.88

    Year: 3 Large Company 19.01 U.S. Treasury Bill: 3.80

    Year: 4 Large Company: -14.67 U.S. Treasury Bill: 6.96

    Year: 5 Large Company: -32.16 U.S. Treasury Bill: 4.88

    Year: 6 Large Company: 37.26 U.S. Treasury Bill: 6.14

    a.

    Calculate the arithmetic average returns for large-company stocks and T-bills over this period.

    b.

    Calculate the standard deviation of the returns for large-company stocks and T-bills over this period

    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?

    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?

    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?

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