Refer again to Figure. At the stock market peak in 1929, look at the gap that exists between equities and bonds. At the end of 1929, the $1 investment in stocks was worth about five times more than the $1 investment in bonds. About how long did investors in stocks have to wait before they would regain that same performance edge? Again, getting a precise answer from the figure is difficult, so make an estimate.
Answer to relevant QuestionsThe 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 ...D. S. Trucking Company stock pays a $1.50 dividend every year. A year ago the stock sold for $25 per share, and its total return during the past year was 20%. What does the stock sell for today? Why is the risk-based approach the best method for estimating stocks expected return? Describe the scale problem and the timing problem and explain the potential effects of these problems on the choice of mutually exclusive projects, using IRR versus NPV. Why is it important for the financial analyst to: (a) Focus on incremental cash flows, (b) Ignore financing costs, (c) Consider taxes, and (d) Adjust for noncash expenses when estimating projects relevant cash flows?
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