Consider the following rates of return: Year / Large CompanyStocks / US Treasury Bill 1 3.99 % 4.59 % 2 14.16 4.94 3 19.25 3.864 –14.43 6.99 5 –31.92 5.30 6 37.49 6.20 a. Calculate thearithmetic average returns for large-company stocks and T-billsover this period. b. Calculate the standard deviation of thereturns for large-company stocks and T-bills over this period. c-1Calculate the observed risk premium in each year for thelarge-company stocks versus the T-bills. What was the arithmeticaverage risk premium over this period? c-2 Calculate the observedrisk premium in each year for the large-company stocks versus theT-bills. What was the standard deviation of the risk premium overthis period?
