You've observed the following returns on Pine Computer's stock over the past fiveyears: -28.5 percent, 16 percent, 35 percent, 3.5 percent, and 22.5 percent. Theaverage inflation rate over this period was 3.35 percent and the average T-bill rate overthe period was 4.3 percent.a. What was the average real risk-free rate over this time period?Note: Do not round intermediate calculations and enter your answer as apercent rounded to 2 decimal places, e.g., 32.16.b. What was the average real risk premium?Note: Do not round intermediate calculations and enter your answer as apercent rounded to 2 decimal places, e.g., 32.16.× Answer is not complete.a. Average real risk-free rateb. Average real risk premium0.93%%

Part 2: Explanation:Step 1: Calculate the average nominal risk-free rate:The average T-bill rate…

Answered: You've observed the following returns…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 18PROB

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A stock is trading at $80 per share. The stock is expected to have a yearend dividend of $4 per share (D1 = $4), and it is expected to grow at some constant rate, g, throughout time. The stock’s required rate of return is 14% (assume the market is in equilibrium with the required return equal to the expected return). What is your forecast of gL?
You've observed the following returns on Pine Computer's stock over the past five years -24.6 percent, 13.4 percent, 29.8 percent, 2.2 percent, and 21.2 percent. The average inflation rate over this period was 3.22 percent and the average T - bill rate over the period was 4.3 percent. What was the average real risk - free rate over this time period? What was the average real risk premium?
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Calculating Real Returns and Risk Premiums You’ve observed the following returns on Bennington Corporation’s stock over the past five years: 13 percent, −8 percent, 16 percent, 16 percent, and 10 percent. Suppose the average inflation rate over this period was 1.5 percent and the average T-bill rate over the period was 5 percent. a. What was the average real return on the company's stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What was the average nominal risk premium on the company's stock?
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