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Calculate the observed risk premium

Year Large Cap Stocks U.S. T-Bills

1970 3.94 6.50

1971 14.30 4.36

1972 18.99 4.23

1973 (14.69) 7.29

1974 (26.47) 7.99

1975 37.23 5.87

1) Calculate arithmetic average returns for large cap stocks and T-bills over the period.

2) Calculate standard deviation of returns for large cap stocks and T-bills over the period.

3) Calculate the observed risk premium in each year for large cap stocks vs. T-bills. What was the average risk premium over this period? What was the standard deviation of the risk premium over this period?

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