Problem:
You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 18 percent, -3 percent, 16 percent, 11 percent, and 10 percent. Suppose the average inflation rate over this period was 3.2 percent and the average T-bill rate over the period was 5.5 percent.
Required:
Question 1: What was the average real return on Crash-n-Burn's stock?
Question 2: What was the average nominal risk premium on Crash-n-Burn's stock?
Note: Please provide reasons to support your answer.