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Homework answers / question archive / Suppose we have the following returns for large-company stocks and Treasury bills over a six-year period: Year Large Company % US TreasuryBill % 1 4

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

Year Large Company % US TreasuryBill %

1 4.00 4.62

2 14.49 4.96

3 19.33 3.88

4 -14.35 7.00

5 -31.84 5.38

6 37.04 6.43

**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-1)** Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the arithmetic average risk premium over this period?

**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?

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