# Question

Consider these long-term investment data:

i. The price of a 10-year $ 100 par-zero coupon inflation-indexed bonds is $ 84.49.

ii. A real estate property is expected to yield 2 percent per quarter (nominal) with an SD of the (effective) quarterly rate of 10 percent.

a. Compute the annual rate on the real bond.

b. Compute the CC annual risk premium on the real-estate investment.

c. Use the appropriate formula and Excel’s Solver or its Goal Seek function to find the SD of the CC annual excess return on the real estate investment.

d. What is the probability of loss or shortfall after 10 years?

i. The price of a 10-year $ 100 par-zero coupon inflation-indexed bonds is $ 84.49.

ii. A real estate property is expected to yield 2 percent per quarter (nominal) with an SD of the (effective) quarterly rate of 10 percent.

a. Compute the annual rate on the real bond.

b. Compute the CC annual risk premium on the real-estate investment.

c. Use the appropriate formula and Excel’s Solver or its Goal Seek function to find the SD of the CC annual excess return on the real estate investment.

d. What is the probability of loss or shortfall after 10 years?

## Answer to relevant Questions

What is the standard deviation of returns on stocks X and Y? Using the historical risk premiums over the 1957–2012 period as your guide, if the current risk-free interest rate is 3 percent, what is your estimate of the expected annual HPR on the S&P/TSX Composite stock portfolio? You manage an equity fund with an expected risk premium of 10 percent and an expected standard deviation of 14 percent. The rate on Treasury bills is 6 percent. Your client chooses to invest $ 60,000 of her portfolio in your ...Suppose that in addition to investing in one more stock you can invest in T-bills as well. Would you change your answers to problems 17 and 18 if the T-bill rate is 8 percent? If the simple CAPM is valid, which of the following situations are possible? Explain. Consider each situation independently.Post your question

0