Problem: Assume we have the following returns for large-company stocks and Treasury bills over the 6 year period:
i) Year: 1 Large Company: 3.96 U.S. Treasury Bill: 4.50
ii) Year: 2 Large Company: 14.12 U.S. Treasury Bill: 4.88
iii) Year: 3 Large Company 19.01 U.S. Treasury Bill: 3.80
iv) Year: 4 Large Company: - 14.67 U.S. Treasury Bill: 6.96
v) Year: 5 Large Company: - 32.16 U.S. Treasury Bill: 4.88
vi) Year: 6 Large Company: 37.26 U.S. Treasury Bill: 6.14
Question1. Evaluate the arithmetic average returns for large-company stocks and T-bills during period.
Question2. Evaluate the standard deviation of returns for large-company stocks and T-bills during this period
Question3. Evaluate the observed risk premium in each year for large-company stocks versus the T-bills. What was average risk premium during this period?
Question4. Evaluate the observed risk premium in each year for large-company stocks versus the T-bills. What was the standard deviation of the risk premium during this period?
Question5. Evaluate the observed risk premium in each year for large-company stocks versus the T-bills. What was the standard deviation of the risk premium during this period?