Risk Premiums. Here are rates of return on a broad stock market index and on Treasury bills between 2011 and 2015: (LO11-1) Year Stock Market Return (%) T-Bill Return (%) 2011 0.98 0.03 2012 16.06 0.05 2013 33.06 0.07 2014 12.71 0.05 2015 0.67 0.21 a. What was the risk premium on common stock in each year? b. What was the average risk premium? c. What was the standard deviation of the risk premium?
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The risk premium on common stock in each year is calculated by subtracting the T-Bill Return from the Stock Market Return. For 2011: 0.98 - 0.03 = 0.95% For 2012: 16.06 - 0.05 = 16.01% For 2013: 33.06 - 0.07 = 32.99% For 2014: 12.71 - 0.05 = 12.66% For 2015: Show more…
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