Question: Consider the following table for a certain period. Returns Year Large-Company Stocks U.S. Treasury Bills 1 3.54% 6.60% 2 14.10 6.26 3 17.99 4.43 4

Consider the following table for a certain period.

Returns
Year Large-Company Stocks U.S. Treasury Bills
1 3.54% 6.60%
2 14.10 6.26
3 17.99 4.43
4 -15.29 7.79
5 -25.97 7.29
6 37.73 6.97

Requirement 1:

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

Requirement 2:

Calculate the standard deviation of the returns for large-company stocks and T-bills over this period.
Requirement 3:

Calculate the observed risk premium in each year for the large-company stocks versus the T-bills.

(a)

What was the arithmetic average risk premium over this period?
(b)

What was the standard deviation of the risk premium over this period?

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