Calculating Real Returns and Risk Premiums
You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 5 percent, -14 percent, 25 percent, 20 percent, and 17 percent. The average inflation rate over this period was 3.4 percent and the average T-bill rate was 4.85 percent.
Requirement 1:
What was the average real return on Crash-n-Burn’s stock? (Do not round intermediate calculations.)
7.66% 6.96% 7.31% 14.36% 6.62%
Requirement 2:
What was the average nominal risk premium on Crash-n-Burn’s stock? (Do not round intermediate calculations.)