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    Risk Premiums

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    Here are stock market and Treasury bill returns between 1997 and 2001:
    Year Stock Market Return T-Bill Return
    1997 31.29 5.26
    1998 23.43 4.86
    1999 23.56 4.68
    2000 -10.89 5.89
    2001 -10.97 3.83

    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?

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    Solution Summary

    Risk premiums are discussed for common stocks.