You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 6 percent, -12 percent, 24 percent, 21 percent, and 16 percent. The average inflation rate over this period was 3.8 percent and the average T-bill rate was 4.55 percent.
Requirement
1. What was the average real return on Crash-n-Burn’s stock?
2. What was the average nominal risk premium on Crash-n-Burn’s stock?