Homework Answers
1. Average return = (0.05 – 0.11 + 0.29 + 0.16 + 0.12) / 5 = 0.102 or 10.2%
(1 + R) = (1 + r)(1 + h)
r = (1.102/1.038) – 1
r = 0.0617 or 6.17%
2. Average risk premium = Average return − Average risk-free rate
Average risk premium = 0.102 − 0.0525
Average risk premium = 0.0495 or 4.95%
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