Question

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

 Suppose we have the following returns for large-company stocks and Treasury bills over a six year period:
 Year Large Company US Treasury Bill 1 3.66 4.66 2 14.44 2.33 3 19.03 4.12 4 –14.65 5.88 5 –32.14 4.90 6 37.27 6.33
 a. Calculate the arithmetic average returns for large-company stocks and T-bills over this period. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
 Average returns Large company stocks % T-bills %
 b. Calculate the standard deviation of the returns for large-company stocks and T-bills over this period. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
 Standard deviation Large company stocks % T-bills %
 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? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. 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. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
 Standard deviation %

Risk premium is calculated by following formula:

Risk premium = large-company stocks - T bill rate

Arithmatic average and standard deviation of Large company stock and T bill and risk premium is calculated in excel and screen shot provided below:

a.

Arithmatic average of Large company stock is 4.60% and Arithmatic average of T bill is 4.69%.

b.

Standard deviation of Large company stock is 24.87% and Standard deviation of T bill is 1.39%.

c-1

C-2

Standard deviation of risk premium is 25.01%.