1.) suppose we have the following returns for large-company stocks
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1.) Suppose we have the following returns for large-company stocks and Treasury bills over a six year period: |
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Year |
Large Company |
US Treasury Bill |
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1 |
3.66 |
4.66 |
|
2 |
14.44 |
2.33 |
|
3 |
19.03 |
4.12 |
|
4 |
–14.65 |
5.88 |
|
5 |
–32.14 |
4.90 |
|
6 |
37.27 |
6.33 |
a.) Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the arithmetic average risk premium over this period?
b.) Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the standard deviation of the risk premium over this period?
2.) You’ve observed the following returns on Yasmin Corporation’s stock over the past five years: 10 percent, –10 percent, 17 percent, 22 percent, and 10 percent.
a. What was the variance of Yasmin’s returns over this period?
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3.) You bought one of Bergen Manufacturing Co.’s 5.2 percent coupon bonds one year ago for $1,055. These bonds make annual payments and mature fourteen years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 4 percent. |
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If the inflation rate was 3.4 percent over the past year, what would be your total real return on the investment? |
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What range would you expect to see 99 percent of the time?
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