You've observed the following returns on SkyNet Data Corporation's stock over the pastfive years: 16 percent, -16 percent, 18 percent, 28 percent, and 10 percent. Suppose theaverage inflation rate over this period was 2.1 percent and the average T-bill rate overthe period was 4.2 percent.What was the average real risk-free rate over this time period? (Do not roundintermediate calculations and enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)What was the average real risk premium? (Do not round intermediate calculations andenter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)Average real risk-free rateAverage real risk premium%%

Let's break down the calculations step-by-step:1. Average Real Risk-Free Rate CalculationThe formula…

Answered: You've observed the following returns…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A stock has had returns of 10 percent, 17 percent, 26 percent, −14 percent, 24 percent, and −9 percent over the last six years. What are the arithmetic and geometric average returns for the stock? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
A stock has had returns of 39.00 percent, 23.00 percent, 34.00 percent, -11.00 percent, 21.00 percent, and -53.00 percent over the last six years. What are the arithmetic and geometric returns for the stock? (Do not round intermediate calculations. Round the final answers to 2 decimal places.) Arithmetic average return Geometric average return
The table given below reports last five years data on annual rates of return (HPYS) on two stocks Year Stock A (%) Stock B (%) 1 16 -10 24 40 30 10 5 -20 20 1. Compute the arithmetic mean of the annual rates of return for both stocks. Which stock is preferable using this measure
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A stock had a return of 6.8 percent last year. If the inflation rate was 1.2 percent, what was the approximate real return? (Enter your answer as a percent rounded to 1 decimal place.)
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Consider the performance of two securities, J and K over the five year period from 2000 to 2004. The annual return earned on each one of them is as provided in the table below: Year J K % % 2000 -30.0 6.4 2001 55.9 -21.1 2002 15.7 -10.0 2003 75.9 35.0 2004 5.7 15.6 Required: Compute the following: (i) The Arithmetic Mean returns of both securities over the 5-year holding period and the Geometric Mean return of both securities over the 5-year holding period. (ii) Assuming your organization had K100 million to invest on 01st January, 2000. If this was invested equally in the two securities, what terminal value would be accumulated after 5 years with annual compounding? (ii)What level of volatility would your investments be exposed to over the holding period for each security? and Evaluate the performance of the securities individually. With hindsight, which security would you have advised management to invest…
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You've observed the following returns on Bennington Corporation's stock over the past five years: 13 percent, -8 percent, 16 percent, 16 percent, and 10 percent. Suppose the average inflation rate over this period was 1.5 percent and the average T-bill rate over the period was 5 percent. a. What was the average real risk-free rate over this time period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What was the average real risk premium? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Average real risk-free rate b. Average real risk premium % %

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