Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock Market Return (%) T-Bill Return (%) 2013 36.00 0.22 2014 15.40 0.22 2015 −5.20 0.22 2016 17.00 0.09 2017 26.00 0.11 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 (%) T-Bill Return (%) 2013 36.00 0.22 2014 15.40 0.22 2015 −5.20 0.22 2016 17.00 0.09 2017 26.00 0.11 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.)
Chapter7: Valuation Of Stocks And Corporations
Section7.4: Valuing Common Stocks
Problem 3ST
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Assume these are the stock market and Treasury bill returns for a 5-year period:
Year | Stock Market Return (%) | T-Bill Return (%) | |||||
2013 | 36.00 | 0.22 | |||||
2014 | 15.40 | 0.22 | |||||
2015 | −5.20 | 0.22 | |||||
2016 | 17.00 | 0.09 | |||||
2017 | 26.00 | 0.11 | |||||
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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