Assume these are the stock market and Treasury bill returns for a 5-year period in the attached image: A. What was the risk premium on common stock in each year? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)                            Risk Premium 2013                         % 2014                         % 2015                         % 2016                        % 2017                       % b. What was the average risk premium? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

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
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Assume these are the stock market and Treasury bill returns for a 5-year period in the attached image:

A. What was the risk premium on common stock in each year? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

                           Risk Premium

2013                         %

2014                         %

2015                         %

2016                        %

2017                       %

b. What was the average risk premium? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Stock Market T-Bill Return
Year
Return (%)
(%)
2013
35.90
0.21
2014
15.20
0.21
2015
-5.10
0.21
2016
16.90
0.08
2017
25.90
0.10
Transcribed Image Text:Stock Market T-Bill Return Year Return (%) (%) 2013 35.90 0.21 2014 15.20 0.21 2015 -5.10 0.21 2016 16.90 0.08 2017 25.90 0.10
Expert Solution
Step 1

The risk premium of each stock is computed as follows:

Risk Premium = Stock Market return - T Bill return                           

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