Suppose we have the following returns for large-company stocks and Treasury bills over a six year period:
| Year |
Large Company |
US Treasury Bill |
| 1 |
3.99 |
4.59 |
| 2 |
14.16 |
4.94 |
| 3 |
19.25 |
3.86 |
| 4 |
-14.43 |
6.99 |
| 5 |
-31.92 |
5.30 |
| 6 |
37.49 |
6.20 |
|
Calculate the arithmetic average returns for large-company stocks and T-bills over this period.
Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the average risk premium over this period?
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?