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Assume these are the stock market and Treasury bill returns for a 5-year period:
Year Stock Market Return (%) T-Bill Return (%)
2013 32.80 0.09
2014 12.20 0.09
2015 -2.90 0.09
2016 14.00 0.04
2017 23.00 0.06
Required:
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? (Ignore that the estimation is from a sample of data.)
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