1. You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 7 percent, -13 percent, 21 percent, 34 percent, and 15 percent.
a. What was the arithmetic average return on Crash-n-Burn’s stock over this five-year period?
b. What was the variance of Crash-n-Burn’s returns over this period? The standard deviation?
2. For Problem 9, suppose the average inflation rate over this period was 3.5 percent and the average T-bill rate over the period was 4.2 percent.
a. What was the average real return on Crash-n-Burn’s stock?
b. What was the average nominal risk premium on the Crash-n-Burn’s stock?