Problem 10-8 Risk Premiums [LO 2] Consider the following table for a period of six years. Returns Year Large-Company Stocks U.S. Treasury Bills Year 1 16.49 % 7.65 % Year 2 27.01 8.17 Year 3 37.59 6.23 Year 4 24.29 6.87 Year 5 7.88 5.63 Year 6 6.93 8.18 Requirement 1: Calculate the arithmetic average returns for large-company stocks and T-bills over this time period. (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Arithmetic average returns Large-company stock 2.91 % T-bills 7.12 % Requirement 2: Calculate the standard deviation of the returns for large-company stocks and T-bills over this time period. (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Standard deviation Large-company stock 24.75 % T-bills 1.06 % 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? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Risk premium -4.22 % (b) What was the standard deviation of the risk premium over this period? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Risk premium standard deviation 25.24 %

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