Adequate information: The annual return on a large company’s stock is 12.1% from 1926 to 2017. The average inflation rate is 3.0%. To calculate: The arithmetic nominal rate of return on a large company’s stock. Introduction: Nominal rate of return refers to the rate of return that is earned by the investors before making any adjustments with respect to inflation.

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Answer 1

Question

Chapter 10, Problem 5QAP

A

Summary Introduction

Adequate information:

The annual return on a large company’s stock is 12.1% from 1926 to 2017.

The average inflation rate is 3.0%.

To calculate: The arithmetic nominal rate of return on a large company’s stock.

Introduction: Nominal rate of return refers to the rate of return that is earned by the investors before making any adjustments with respect to inflation.

B

Summary Introduction

Adequate information:

The annual return on a large company’s stock is 12.1% from 1926 to 2017.

The average inflation rate is 3.0%.

To calculate: The arithmetic real rate of return on a large company’s stock.

Introduction: Nominal rate of return refers to the rate of return that is earned by the investors before making any adjustments with respect to inflation. The real rate of return is the rate of return that is adjusted with the given inflation rate.

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Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock Market Return (%) T-Bill Return (%) 2013 36.00 0.22 2014 15.40 0.22 2015 −5.20 0.22 2016 17.00 0.09 2017 26.00 0.11 Required: 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? (Ignore that the estimation is from a sample of data.)

Using the data in the table:, a. What was the average annual return of Microsoft stock from 2005-2017? b. What was the annual volatility for Microsoft stock from 2005-2017? a. What was the average annual return of Microsoft stock from 2005-2017? The average annual return is %. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Realized Return for the S&P 500, Microsoft, and Treasury Bills, 2005-2017 S&P 500 Realized Return Microsoft Realized Return Dividends Paid* Year End 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 S&P 500 Index 1211.92 1248.29 3.00% 4.80% 1418.30 1468.36 903.25 4.70% 1.50% 0.10% 0.10% 1115.10 1257.64 1257.61 0.00% 1426.19 0.10% 1848.36 0.00% 0.00% 2058.90 2043.94 0.00% 0.20% 2238.83 2673.61 0.80% *Total dividends paid by the 500 stocks in the portfolio, based on the number of shares of each stock in the index, adjusted until the end of the year, assuming they were…

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Answer 2

Question

Chapter 10, Problem 5QAP

A

Summary Introduction

Adequate information:

The annual return on a large company’s stock is 12.1% from 1926 to 2017.

The average inflation rate is 3.0%.

To calculate: The arithmetic nominal rate of return on a large company’s stock.

Introduction: Nominal rate of return refers to the rate of return that is earned by the investors before making any adjustments with respect to inflation.

B

Summary Introduction

Adequate information:

The annual return on a large company’s stock is 12.1% from 1926 to 2017.

The average inflation rate is 3.0%.

To calculate: The arithmetic real rate of return on a large company’s stock.

Introduction: Nominal rate of return refers to the rate of return that is earned by the investors before making any adjustments with respect to inflation. The real rate of return is the rate of return that is adjusted with the given inflation rate.

Expert Solution & Answer

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Answer 3

Question

Chapter 10, Problem 5QAP

A

Summary Introduction

Adequate information:

The annual return on a large company’s stock is 12.1% from 1926 to 2017.

The average inflation rate is 3.0%.

To calculate: The arithmetic nominal rate of return on a large company’s stock.

Introduction: Nominal rate of return refers to the rate of return that is earned by the investors before making any adjustments with respect to inflation.

B

Summary Introduction

Adequate information:

The annual return on a large company’s stock is 12.1% from 1926 to 2017.

The average inflation rate is 3.0%.

To calculate: The arithmetic real rate of return on a large company’s stock.

Introduction: Nominal rate of return refers to the rate of return that is earned by the investors before making any adjustments with respect to inflation. The real rate of return is the rate of return that is adjusted with the given inflation rate.

Expert Solution & Answer

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Answer 4

Question

Chapter 10, Problem 5QAP

A

Summary Introduction

Adequate information:

The annual return on a large company’s stock is 12.1% from 1926 to 2017.

The average inflation rate is 3.0%.

To calculate: The arithmetic nominal rate of return on a large company’s stock.

Introduction: Nominal rate of return refers to the rate of return that is earned by the investors before making any adjustments with respect to inflation.

B

Summary Introduction

Adequate information:

The annual return on a large company’s stock is 12.1% from 1926 to 2017.

The average inflation rate is 3.0%.

To calculate: The arithmetic real rate of return on a large company’s stock.

Introduction: Nominal rate of return refers to the rate of return that is earned by the investors before making any adjustments with respect to inflation. The real rate of return is the rate of return that is adjusted with the given inflation rate.

Expert Solution & Answer

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Answer 5

Chapter 10, Problem 5QAP

A

Summary Introduction

Adequate information:

The annual return on a large company’s stock is 12.1% from 1926 to 2017.

The average inflation rate is 3.0%.

To calculate: The arithmetic nominal rate of return on a large company’s stock.

Introduction: Nominal rate of return refers to the rate of return that is earned by the investors before making any adjustments with respect to inflation.

B

Summary Introduction

Adequate information:

The annual return on a large company’s stock is 12.1% from 1926 to 2017.

The average inflation rate is 3.0%.

To calculate: The arithmetic real rate of return on a large company’s stock.

Introduction: Nominal rate of return refers to the rate of return that is earned by the investors before making any adjustments with respect to inflation. The real rate of return is the rate of return that is adjusted with the given inflation rate.

Answer 6

Chapter 10, Problem 5QAP

A

Summary Introduction

Adequate information:

The annual return on a large company’s stock is 12.1% from 1926 to 2017.

The average inflation rate is 3.0%.

To calculate: The arithmetic nominal rate of return on a large company’s stock.

Introduction: Nominal rate of return refers to the rate of return that is earned by the investors before making any adjustments with respect to inflation.

Answer 7

Chapter 10, Problem 5QAP

A

Summary Introduction

Adequate information:

The annual return on a large company’s stock is 12.1% from 1926 to 2017.

The average inflation rate is 3.0%.

To calculate: The arithmetic nominal rate of return on a large company’s stock.

Introduction: Nominal rate of return refers to the rate of return that is earned by the investors before making any adjustments with respect to inflation.

Answer 8

B

Summary Introduction

Adequate information:

The annual return on a large company’s stock is 12.1% from 1926 to 2017.

The average inflation rate is 3.0%.

To calculate: The arithmetic real rate of return on a large company’s stock.

Introduction: Nominal rate of return refers to the rate of return that is earned by the investors before making any adjustments with respect to inflation. The real rate of return is the rate of return that is adjusted with the given inflation rate.

Answer 9

B

Summary Introduction

Adequate information:

The annual return on a large company’s stock is 12.1% from 1926 to 2017.

The average inflation rate is 3.0%.

To calculate: The arithmetic real rate of return on a large company’s stock.

Introduction: Nominal rate of return refers to the rate of return that is earned by the investors before making any adjustments with respect to inflation. The real rate of return is the rate of return that is adjusted with the given inflation rate.

Answer 10

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Answer 11

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Answer 12

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Answer 13

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Solution Summary: The author explains that the annual return on a large company's stock is 12.1% from 1926 to 2017. The average inflation rate is 3.0%.

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