You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 6 percent, -15 percent, 26 percent, 16 percent, and 16 percent. The average inflation rate over this period was 3.4 percent and the average T-bill rate was 5.3 percent.
Requirement 1: What was the average real return on Crash-n-Burn’s stock?
Requirement 2: What was the average nominal risk premium on Crash-n-Burn’s stock?