Homework Answers
| 1 | 2 | 3 | 4 | 5 | 6 |
| Year | Stock Market Return | T-Bill Return | Risk Premium (x){2-3} | x-x̅ | (x-x̅)^2 |
| 2006 | 15.77 | 4.8 | 10.97 | 7.304 | 53.348 |
| 2007 | 5.61 | 4.66 | 0.95 | -2.716 | 7.378 |
| 2008 | -37.23 | 1.6 | -38.83 | -42.496 | 1805.91 |
| 2009 | 28.3 | 0.1 | 28.2 | 24.534 | 601.917 |
| 2010 | 17.16 | 0.12 | 17.04 | 13.374 | 178.864 |
| ΣX=18.33 | Σ(x-x̅)^2=2647.417 | ||||
| X̅=3.666 | Σ(x-x̅)^2/5=529.483 | ||||
| √Σ(x-x̅)^2/5=23.011 |
a. Risk premium is the difference between the stock market return and the risk free return ( T Bill Return). Calculated in column 4 of the above table for years 2006 to 2010
b.Average risk premium is the total of risk premium of all the 5 years from 2006 to 2010 i.e mean value. . (Average risk premium=3.666)
c.Standard deviation is the deviation from mean. Standard deviation = 23.011.
Therfeore actuals will range between mean plus or minus 23.011.
d.Co efficient of variation = (standard Deviation / mean)
= (23.011/3.666)
=6.277
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