You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 8 percent, −15 percent, 19 percent, 31 percent, and 21 percent. Suppose the average inflation rate over this period was 3.1 percent and the average T-bill rate over the period was 3.9 percent. |
a. |
What was the average real return over this time period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
b. | What was the average nominal risk premium over this time period? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.) |
a
Real return = ((1+nominal return)/(1+inflation rate)-1)*100 |
Real return=((1+0.039)/(1+0.031)-1)*100 |
Real return = 0.78 |
b
Year | Stock |
1 | 8.00% |
2 | -15.00% |
3 | 19.00% |
4 | 31.00% |
5 | 21.00% |
Average= | 12.80% |
Average or Mean = Sum of all observations/Count of all observations |
Nominal risk premium = 12.8-3.9 = 8.9%
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You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 8 percent,...
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