Homework Help Question & Answers

Refer to Table 12.1 and look at the period from 1970 through 1975.

Table 12.1 (below)

TABLE 12.1 Year-to-Year Total Returns: 1926–2019
YearLarge-Company StocksLong-Term Government BondsU.S. Treasury BillsConsumer Price Index
192611.62%7.77%3.27%–1.49%
192737.498.933.12–2.08
192843.61.103.56–.97
1929–8.423.424.75.20
1930–24.904.662.41–6.03
1931–43.34–5.311.07–9.52
1932–8.1916.84.96–10.30
193353.99–.07.30.51
1934–1.4410.03.162.03
193547.674.98.172.99
193633.927.52.181.21
1937–35.03.23.313.10
193831.125.53–.02–2.78
1939–.415.94.02–.48
1940–9.786.09.00.96
1941–11.59.93.069.72
194220.343.22.279.29
194325.902.08.353.16
194419.752.81.332.11
194536.4410.73.332.25
1946–8.07–.10.3518.16
19475.71–2.62.509.01
19485.503.40.812.71
194918.796.451.10–1.80
195031.71.061.205.79
195124.02–3.931.495.87
195218.371.161.66.88
1953–.993.641.82.62
195452.627.19.86–.50
195531.56–1.291.57.37
19566.56–5.592.462.86
1957–10.787.463.143.02
195843.36–6.091.541.76
195911.96–2.262.951.50
1960.4713.782.661.48
196126.89.972.13.67
1962–8.736.892.731.22
196322.801.213.121.65
196416.483.513.541.19
196512.45.713.931.92
1966–10.063.654.763.35
196723.98–9.184.213.04
196811.06–.265.214.72
1969–8.50–5.076.586.11
19703.8612.116.525.49
197114.3013.234.393.36
197219.005.693.843.41
1973–14.69–1.116.938.80
1974–26.474.358.0012.20
197537.239.205.807.01
197623.9316.755.084.81
1977–7.16–.695.126.77
19786.57–1.187.189.03
197918.61–1.2310.3813.31
198032.50–3.9511.2412.40
1981–4.921.8614.718.94
198221.5540.3610.543.87
198322.56.658.803.80
19846.2715.489.853.95
198531.7330.977.723.77
198618.6724.536.161.13
19875.25–2.715.474.41
198816.619.676.354.42
198931.6918.118.374.65
1990–3.106.187.816.11
199130.4719.305.603.06
19927.628.053.512.90
199310.0818.242.902.75
19941.32–7.773.902.67
199537.5831.675.602.54
199622.96–.935.213.32
199733.3615.855.261.70
199828.5813.064.861.61
199921.04–8.964.682.68
2000–9.1021.485.893.39
2001–11.893.703.831.55
2002–22.1017.841.652.38
200328.681.451.021.88
200410.888.511.203.26
20054.917.812.983.42
200615.791.194.802.54
20075.499.884.664.08
2008–37.0025.871.60.09
200926.46–14.90.102.72
201015.0610.14.121.50
20112.1127.10.042.96
201216.003.43.061.74
201332.39–12.78.021.51
201413.6924.71.02.76
20151.38–.65.02.73
201611.961.75.202.07
201721.836.24.802.11
2018–4.38–.571.811.91
201931.4912.162.142.29
Questions:

a.

Calculate the arithmetic average returns for large-company stocks and T-bills over this period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

b.Calculate the standard deviation of the returns for large-company stocks and T-bills over this period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
c-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? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
c-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? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answers: What are "?"

a.Large-company stocks
5.55
%
a.T-bills?%
b.Large-company stocks
23.23%
b.T-bills?%
c-1Average risk premium0.49%
c-2Standard deviation
24.40%


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