1.) Suppose we have the following returns for largecompany stocks and Treasury bills over a six year period: 
Year 
Large Company 
US Treasury Bill 
1 
3.66 
4.66 
2 
14.44 
2.33 
3 
19.03 
4.12 
4 
–14.65 
5.88 
5 
–32.14 
4.90 
6 
37.27 
6.33 
a.) Calculate the observed risk premium in each year for the largecompany stocks versus the Tbills. What was the arithmetic average risk premium over this period?
b.) Calculate the observed risk premium in each year for the largecompany stocks versus the Tbills. What was the standard deviation of the risk premium over this period?
2.) You’ve observed the following returns on Yasmin Corporation’s stock over the past five years: 10 percent, –10 percent, 17 percent, 22 percent, and 10 percent.
a. What was the variance of Yasmin’s returns over this period?
3.) You bought one of Bergen Manufacturing Co.’s 5.2 percent coupon bonds one year ago for $1,055. These bonds make annual payments and mature fourteen years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 4 percent. 

If the inflation rate was 3.4 percent over the past year, what would be your total real return on the investment? 





What range would you expect to see 99 percent of the time?
