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    Risk Premiums

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    Risk Premiums. Here are stock market and Treasury bill returns between 1997 and 2001:

    Year: 1997 Stock Market Return= 31.29 T-Bill Return = 5.26
    Year: 1998 Stock Market Return = 23.43 T-Bill Return = 4.86
    Year: 1999 Stock Market Return = 23.56 T-Bill Return = 4.68
    Year: 2000 Stock Market Return = -10.89 T-Bill Return = 5.89
    Year: 2001 Stock Market Return = -10.97 T-Bill Return = 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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    https://brainmass.com/economics/risk-analysis/risk-premiums-stock-market-121206

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    a) Risk premium = stock market return - risk free rate(T Bill)
    1997: 31.29-5.26=26.03
    1998: 23.42-4.86=18.56 ...

    Solution Summary

    The standard deviation of the risk premium is mentioned.

    $2.19