You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 14 percent, –7 percent, 17 percent, 15 percent, and 10 percent. Suppose the average inflation rate over this period was 1.4 percent and the average T-bill rate over the period was 5.1 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?