The following information is available concerning the historical risk and return relationships in the U.S. capital markets: U.S. CAPITAL MARKETS TOTAL ANNUAL RETURNS, 1990-2011 Investment Category Common stocks Treasury bills Long-term government bonds Long-term corporate bonds Real estate "Based on arithmetic mean. Arithmetic Mean 10.28% 3.54 5.10 5.95 9.49 Geometric Mean 8.81% 3.49 4.91 5.65 9.44 Standard Deviation of Returnª 16.9% 3.2 6.4 9.6 4.5 a. Explain why the geometric and arithmetic mean returns are not equal and whether one or the other may be more useful for investment decision making. b. For the time period indicated, rank these investments on a relative basis using the coef- ficient of variation from most to least desirable. Explain your rationale. c. Assume the arithmetic mean returns in these series are normally distributed. Calculate the range of returns that an investor would have expected to achieve 95 percent of the time from holding common stocks.

The following information is available concerning the historical risk and return relationships in the U.S. capital markets: U.S. CAPITAL MARKETS TOTAL ANNUAL RETURNS, 1990-2011 Investment Category Common stocks Treasury bills Long-term government bonds Long-term corporate bonds Real estate "Based on arithmetic mean. Arithmetic Mean 10.28% 3.54 5.10 5.95 9.49 Geometric Mean 8.81% 3.49 4.91 5.65 9.44 Standard Deviation of Returnª 16.9% 3.2 6.4 9.6 4.5 a. Explain why the geometric and arithmetic mean returns are not equal and whether one or the other may be more useful for investment decision making. b. For the time period indicated, rank these investments on a relative basis using the coef- ficient of variation from most to least desirable. Explain your rationale. c. Assume the arithmetic mean returns in these series are normally distributed. Calculate the range of returns that an investor would have expected to achieve 95 percent of the time from holding common stocks.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter5: Risk Analysis

Section: Chapter Questions

Problem 14PC: Refer to the financial state-ment data for Abercrombie Fitch in Problem 4.25 in Chapter 4. Exhibit...

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The distribution of returns for which one of the following for the period of 1926-2006 produces the widest bell curve (or distribution)? O inflation. O long-term government bonds O large-company stocks O U.S. Treasury bills. small-company stocks
Consider the following table for different assets for 1926 through 2020. Standard Deviation 19.7% Series Large-company stocks Small-company stocks Long-term corporate bonds Long-term government bonds Intermediate-term government bonds U.S. Treasury bills Inflation Average return 12.2% 16.2 6.5 6.1 5.3 3.3 2.9 Expected range of returns Expected range of returns a. What range of returns would you expect to see 68 percent of the time for large-company stocks? Note: A negative answer should be indicated by a minus sign. Enter your answers from lowest to highest. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. What about 95 percent of the time? 31.3 8.5 9.8 Note: A negative answer should be indicated by a minus sign. Enter your answers from lowest to highest. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. % to % to 5.6 3.1 4.0 % %
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ery//ua/69158/45467554/aHR0cHM6Ly9mMS5hcHAUZW t Activity: Mathematical Models and Investments Part C The table gives prices for gold and the New York Stock Exchange Composite Index, which is a fund that averages all the stocks listed on the exchange. The Bureau of Labor Statistics says the inflation rate between 1980 and 2010 was 174%, or about 3.5% a year. Using the data in the table, compare the volatility and returns of gold and the index fund. Finally, use the inflation rate to compare the real rates of return of the two investments. If a friend invested $1,000 in 1980, which investment would make her the most money? Gold (one ounce) NYSE Composite BIU X² X₂ Jan. 1980 $850 $682 15px Jan. 1990 $406 $1,937 Space used (includes formatting): 0/ 15000 O A 2 Jan. 2000 $287 $6,772 1 2 Jan. 2010 $1,104 $7,140 Return 30% 947% 田く 7 of 11 Apr 15 Annual Return 1% Part D Eliza has only one investment: $15,000 in stock shares of IFruit Computing. The stock's annual returns for the last 10 years…
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