You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 13 percent, –8 percent, 16 percent, 16 percent, and 10 percent. Suppose the average inflation rate over this period was 1.5 percent and the average T-bill rate over the period was 5 percent.
a. What was the average real return on Crash-n-Burn’s stock?
b. What was the average nominal risk premium on Crash-n-Burn’s stock?