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Suppose we have the following returns for large-company stocks and Treasury bills over a six year period:

     

Year Large Company  US Treasury Bill
1  3.98 4.56
214.334.92
3 19.17  3.84
4–14.51 6.98
5–32.005.22
6 37.415.36

 

 

1)Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. What was the average risk premium over this period?

2)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?  

 

 

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