Risk Premiums. Here are rates of return on a broad stock market index and on Treasury bills between 2011 and 2015: (LO11-1)

Year Stock Market Return (%) T-Bill Return (%)
2011 0.98 0.03
2012 16.06 0.05
2013 33.06 0.07
2014 12.71 0.05
2015 0.67 0.21

a. What was the risk premium on common stock in each year?
b. What was the average risk premium?
c. What was the standard deviation of the risk premium?

Reliability and validity reliability and validity are two important considerations that must be made with any type of data collection. reliability refers to the ability to consistently produce a given result. in the context of psychological research, this would mean that any instruments or tools used to collect data do so in consistent, reproducible ways. unfortunately, being consistent in measurement does not necessarily mean that you have measured something correctly. to illustrate this concept, consider a kitchen scale that would be used to measure the weight of cereal that you eat in the morning. if the scale is not properly calibrated, it may consistently under- or overestimate the amount of cereal that’s being measured. while the scale is highly reliable in producing consistent results (e.g., the same amount of cereal poured onto the scale produces the same reading each time), those results are incorrect. this is where validity comes into play. validity refers to the extent to which a given instrument or tool accurately measures what it’s supposed to measure. while any valid measure is by necessity reliable, the reverse is not necessarily true. researchers strive to use instruments that are both highly reliable and valid.