Over the past five years, a stock provided annual returns of 12.6 percent, 5.8 percent, 7.9 percent, -11.2 percent and -2.4 percent. What is the arithmetic average return? What is the geometric average return? What is the variance of these returns? What is the standard deviation of these returns?
Refer to Problem 1. If the risk-free rate is 2%, what is the risk premium on the stock? Note: use the arithmetic average return in your computation.