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Finding the arithmetic average and S.D. of returns

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Year Large Cap Stocks U.S. T-Bills

1970 3.94 6.50
1971 14.30 4.36
1972 18.99 4.23
1973 (14.69) 7.29
1974 (26.47) 7.99
1975 37.23 5.87

1) Calculate arithmetic average returns for large cap stocks and T-bills over the period.
2) Calculate standard deviation of returns for large cap stocks and T-bills over the period.
3) Calculate the observed risk premium in each year for large cap stocks vs. T-bills. What was the average risk premium over this period? What was the standard deviation of the risk premium over this period?

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Solution Summary

The solution depicts the steps to calculate the arithmetic mean and standard deviation of returns for the given securities.

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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