Refer to the table 10.1 in the text and look at the period from 1973 through 1978.

Question:

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

(b) Calculate the standard deviation of the returns for large-company stocks and T-bills over this time period.

(c) Calculate the observe risk premium in each year for the large-company stocks versus the T-bills. What was the arithmetic average risk premium over this period? What was the standard deviation of the risk premium over this period?

(d) Is it possible for the risk premium to be negative before an investment is undertaken? Can the risk premium be negative after the fact? Explain.

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...