In Figure, why does the line decline steeply at first and then flatten out?
Answer to relevant QuestionsExplain why the dots in Figure appear to be almost randomly scattered. Suppose there is an asset class with a standard deviation that lies about halfway between the standard deviations of stocks and bonds. Based on Figure, what would you expect the average return on this asset class to be? The following data shows the rate of return on stocks and bonds for several recent years. Calculate the risk premium on equities vs. bonds each year, and then calculate the average risk premium. Do you think at the beginning ...What is the difference between assets expected return and its actual return? Why are expected returns so important to investors and managers? Refer to Figure and answer the following questions. a. What return would you expect on a stock with a beta of 2.0? b. What return would you expect on a stock with a beta of 0.66? c. What determines the slope of the line in ...
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