Over a 40-year period an asset had an arithmetic return of 11.7 percent and a geometric return of 9.6 percent. Using Blume’s formula, what is your best estimate of the future annual returns over 5 years? 10 years? 20 years?
Answer to relevant QuestionsWhat are the portfolio weights for a portfolio that has 145 shares of Stock A that sell for $45 per share and 110 shares of Stock B that sell for $27 per share?Based on the following information, calculate the expected return and standard deviation for the twostocks:A stock has an expected return of 13.3 percent, its beta is 1.45, and the expected return on the market is 10.5 percent. What must the risk-free rate be?Why do we use an after tax figure for cost of debt but not for cost of equity?In Problem 12, suppose the most recent dividend was $4.10 and the dividend growth rate is 6 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds ...
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