Multiple Choice Question Which of these best summarizes market performance for the period 1950-2012? A)Long-term Treasury bonds outperformed T-bills during every decade. B) T-bills produced more stable returns in the short-run and outperformed long-term Treasury bonds for the period. C) Long-term Treasury bond returns were less volatile in the short-run but produced the highest long-run average rate of return. D) The returns on the S&P 500 were more volatile than long-term Treasury

Multiple Choice Question Which of these best summarizes market performance for the period 1950-2012? A)Long-term Treasury bonds outperformed T-bills during every decade. B) T-bills produced more stable returns in the short-run and outperformed long-term Treasury bonds for the period. C) Long-term Treasury bond returns were less volatile in the short-run but produced the highest long-run average rate of return. D) The returns on the S&P 500 were more volatile than long-term Treasury

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter7: Types And Costs Of Financial Capital

Section: Chapter Questions

Problem 15DQ

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During the 1927-2018 period the Sharpe ratio was greatest for which of the following asset classes? Multiple Choice Long-term U.S. Treasury bonds Small/growth U.S. stocks Bond world portfolio return in U.S. dollars Big/value U.S. stocks
Over the period of 1926-2014, which one of the following investment classes had the highest volatility of returns? Multiple Choice Large-company stocks U.S. Treasury bills Small-company stocks Long-term corporate bonds Long-term government bonds
Use the data in the tables below to answer the following questions: Average rates of return on Treasury bills, government bonds, and common stocks, 1900–2020. Portfolio Average Annual Rate of Return (%) Average Premium (Extra return versus Treasury bills) (%) Treasury bills 3.7 Treasury bonds 5.4 1.7 Common stocks 11.5 7.8 Standard deviation of returns, 1900–2020. Portfolio Standard Deviation (%) Treasury bills 2.8 Long-term government bonds 8.9 Common stocks 19.5 What was the average rate of return on large U.S. common stocks from 1900 to 2020? What was the average risk premium on large stocks? What was the standard deviation of returns on common stocks? Note: Enter your answer as a percent rounded to 1 decimal place.
For the cost of equity (stock) is it better to use the current US Treasury bill rate or a longer-termgovernment bond rate as the risk-free rate of return?Does the rate you use as the risk-free rate have an impact on what market premium might beappropriate? Historically, large-company stocks have earned an average return of 12.1% per annum, while US Treasury bills and long-term government bonds have earned average returns of 3.5% and5.9% respectively.
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 % %
Finance Consider the following statements I. A drop in the price-dividend ratio predicts a significantly higher excess return on the market over the next 5 years An increase in the yield-to-maturity spread between BAA and AAA rated bonds predicts a significantly higher excess return on the market over the next year I. The price-to-earning ratio is a better predictor for future market excess returns in short horizons than long horizons I. IV. Gold-to-platinum is a better predictor for the next month market excess return than the variance risk premium Which statements are correct?
Which one of the following had the lowest standard deviation for the period of 1926-2006? long-term government bonds inflation U.S. Treasury bill O large-company stocks O long-term corporate bonds
Refer the table below on the average excess return of the U.S. equity market and the standard deviation of that excess return. Suppose that the U.S. market is your risky portfolio. Period 1927-2021 1927-1950 1951-1974 1975-1998 1999-2021 Average Annual Returns U.S. equity 12.17 10.26 10.21 17.97 10.16 1-Month T-Bills 3.30 0.93 3.59 6.98 1.66 U.S. Excess return 8.87 9.33 6.62 10.99 8.50 Equity Market Standard Deviation 20.25 26.57 20.32 14.40 18.85 Sharpe Ratio 0.44 0.35 0.33 0.76 0.45 Required: a. If your risk-aversion coefficient is A = 4.9 and you believe that the entire 1927-2021 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? Assume your utility function is u = E(r) 0.5 × Ao². b. What if you believe that the 1975-1998 period is representative?
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Inflation has increased to new highs in recent years. How does expectation of higher inflation in the coming years affect interest rates? O A. Demand for bonds increases while supply of bonds declines leading to a higher nominal interest rate. O B. Demand for bonds declines while supply of bonds rises resulting in higher nominal interest rates in the market. O C. Demand for bonds rises in the expectation of higher nominal interest rates leading to a rise in the interest rate. O D. Higher expectation of inflation will lower demand for money causing interest rates to decline in the future.
Which of the following statements regarding risk of assets is correct? Multiple Choice ___ Every decade since 1950 has seen a lot of stock market volatility. ___ The bond market has experienced the most volatility in the 1980s as interest rates varied dramatially. ___ High risk means that an investor may receive poor returns in the short run. ___ All of the statement s are correct.
Which one is correct answer please confirm? Studies analyzing the historical returns earned by common stock investors have found that the returns from average risk common stock investments over very long time periods have averaged approximately ____ percentage points ____ than holding period returns on corporate debt issues. a. 5.7; higher b. 5.7; lower c. 7.5; higher d. 7.5; lower