Over the past four years, Sandstone Quarry stock produced returns of 12.6, 15.2, 9.8, and 2.7 percent, respectively. For the same time period, the risk-free rate 4.6, 5.2, 3.8, and 3.4 percent, respectively. What is the arithmetic average risk premium on this stock during these four years?

Question

Quizplus · Accepted Answer

The arithmetic average risk premium is calculated by subtracting the risk-free rate from the stock returns and then finding the average of these values:

(12.6 - 4.6) + (15.2 - 5.2) + (9.8 - 3.8) + (2.7 - 3.4) = 8.0 + 10.0 + 6.0 - 0.7 = 23.3

Then divide by the number of years:

23.3 / 4 = 5.825 or 5.83%

Therefore, the answer is D, 5.83 percent.

Over the Past Four Years, Sandstone Quarry Stock Produced Returns