Problem:
You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 3 percent, -11 percent, 27 percent, 21 percent, and 14 percent. The average inflation rate over this period was 3.9 percent and the average T-bill rate was 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: Explain the solution in detail.