Over the Past Four Years, Sandstone Quarry Stock Produced Returns

question 47

Multiple Choice

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?

• A) 5.13 percent
• B) 5.25 percent
• C) 5.50 percent
• D) 5.83 percent
• E) 5.97 percent

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Definitions:

Normal Approximation

A method used in statistics to approximate binomial distributions with normal distributions when sample sizes are large, under certain conditions.

Binomial

A statistical distribution that represents the number of successes in a fixed number of trials, with each trial having two possible outcomes.

Population Proportions

The percentage or fraction of individuals in a population that exhibit a particular attribute or characteristic.

Null Hypothesis

A hypothesis in statistical testing that there is no effect or no difference, and any observed deviation is due to sampling or experimental error.