Assume these are the stock market and Treasury bill returns for a 5-year period: IT Stock Market T-Bill Return Year Return (%) (%) 2013 33.70 0.13 2014 13.30 0.13 2015 -3.60 0.13 2016 14.70 0.08 2017 24.20 0.10 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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A: a)  Calculate the average rate of return for each stock.   Result Obtained:

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Q: Assume these are the stock market and Treasury bill returns for a 5-year period:   Required: a.…

A: a) Computation of risk premium on common stock: Working note:

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Q: Assume these are the stock market and Treasury bill returns for a 5-year period: Stock Market Return…

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A: We will use the basic formula assuming the investment of $1000 for the both the question statements:

Q: Assume these are the stock market and Treasury bill returns for a 5-year period: Stock Market T-Bill…

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