##### Question

# You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: …

You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 16 percent, -16 percent, 18 percent, 28 percent, and 10 percent. Suppose the average inflation rate over this period was 2.1 percent and the average T-bill rate over the period was 4.2 percent. a. What was the average real return on the company's stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What was the average nominal risk premium on the company's stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1 a. Average real return b, Average nominal risk premium

## Solutions

##### Expert Solution

1.

Average real return on the company's

stock=(16%-16%+18%+28%+10%)/5-2.1%=9.10%

2.

Average nominal risk premium=9.10%+2.10%-4.2%=7.00%