The following table contains the historic returns from large stocks and long-term Treasury bonds over the...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The following table contains the historic returns from large stocks and long-term Treasury bonds over the last 20 years. Analyze the risk-return trade-off that would have characterized these portfolios. Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Large Stock -11.71 -11.42 -21.13 31.77 11.92 6.05 15.39 5.71 -36.87 28.36 17.49 0.48 16.34 35.23 11.72 0.08 13.49 22.29 -5.22 30.43 Long-Term 14²² Bonds 14.49 4.03 14.66 1.28 5.19 3.10 2.27 9.64 17.67 -5.83 7.45 16.60 3.59 -6.90 10.15 1.07 0.70 2.80 0.04 8.2622 T-Bills 5.89 3.78 1.63 1.02 1.20 2.96 4.79 4.67 1.47 0.10 0.12 0.04 0.06 0.03 0.02 0.01 0.1886 0.7914 1.7066 2.15 Required: a. Calculate the average rate of return and standard deviation of the "Excess returns" after a continuous compounding transformation was performed. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Weights in Stocks 0.0 0.1 0,2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 Weights in Bonds 1 0,9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 O Portfolio Mean % % % % % % % % % % % Portfolio Standard deviation % % % % % % % % % % % d. What were the average return and standard deviation of the minimum-variance combination of stocks and bonds? Minimum-Variance Weights Weights in in Stocks Bonds 0.1938 0.8062 Portfolio Mean % Portfolio Standard deviation % The following table contains the historic returns from large stocks and long-term Treasury bonds over the last 20 years. Analyze the risk-return trade-off that would have characterized these portfolios. Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Large Stock -11.71 -11.42 -21.13 31.77 11.92 6.05 15.39 5.71 -36.87 28.36 17.49 0.48 16.34 35.23 11.72 0.08 13.49 22.29 -5.22 30.43 Long-Term 14²² Bonds 14.49 4.03 14.66 1.28 5.19 3.10 2.27 9.64 17.67 -5.83 7.45 16.60 3.59 -6.90 10.15 1.07 0.70 2.80 0.04 8.2622 T-Bills 5.89 3.78 1.63 1.02 1.20 2.96 4.79 4.67 1.47 0.10 0.12 0.04 0.06 0.03 0.02 0.01 0.1886 0.7914 1.7066 2.15 Required: a. Calculate the average rate of return and standard deviation of the "Excess returns" after a continuous compounding transformation was performed. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Weights in Stocks 0.0 0.1 0,2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 Weights in Bonds 1 0,9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 O Portfolio Mean % % % % % % % % % % % Portfolio Standard deviation % % % % % % % % % % % d. What were the average return and standard deviation of the minimum-variance combination of stocks and bonds? Minimum-Variance Weights Weights in in Stocks Bonds 0.1938 0.8062 Portfolio Mean % Portfolio Standard deviation %
Expert Answer:
Answer rating: 100% (QA)
SOLUTION To calculate the average rate of return and standard deviation of the Excess returns after a continuous compounding transformation we need to subtract the riskfree rate TBills from the return... View the full answer
Related Book For
Essentials of Investments
ISBN: 978-0078034695
9th edition
Authors: Zvi Bodie, Alex Kane, Alan Marcus
Posted Date:
Students also viewed these finance questions
-
Lindberg Company uses a normal job-order costing system. There are two departments, Assembly and Finishing, through which most jobs pass. Selected budgeted and actual data for the past year follow:...
-
What types of equipment can be used to support the effective delivery of presentation content? List three ( 3 ) different types of equipment including graphics, audio, and materials.
-
Polycom Systems earned $480 million last year and paid out 23 percent of earnings in dividends. a. By how much did the company's retained earnings increase? (Do not round intermediate calculations....
-
Arvind runs a small electronics company in India and has just sold some equipment to a U.S. company for $1 million to be paid in 90 days. His cost in Indian Rupees (INR) is 60 million. The current...
-
What are the scope and purpose of the auditor's opinion?
-
Below are shown two views of the backbone representation of the Myc-Max complex binding to DNA (PDB ID: 1npk). Side view of Myc-Max bound to DNA Top view of Myc-Max bound to DNA(looking down the DNA...
-
What ethical standards paralegals must follow?
-
Valuing Preferred Stock Ayden, Inc., has an issue of preferred stock outstanding that pays a $6.50 dividend every year in perpetuity If this issue currently sells for SI 13 per share, what is the...
-
Question 6 Bahrain Trading Co. is preparing budgets for next year. Sales 120,000 units Selling price per unit 500 Opening stock of finished goods 14,000 units Closing stock of finished goods 10,000...
-
Comparative balance sheets for 2024 and 2023 and a statement of income for 2024 are given below for Metagrobolize Industries. Additional information from the accounting records of Metagrobolize also...
-
Complete the SOE and worksheet using the information below. Excess of Market over Book Values (Market - Book) Item: 12/31/2018 -$10,000 $0 $0 $13,000 $20,000 Machinery and Equipment Land Buildings...
-
Adams Camps, Incorporated leases the land on which it builds camp sites. Adams is considering opening a new site on land that requires $ 4 , 3 5 0 of rental payment per month. The variable cost of...
-
Write a quadratic equation in x with the solutions -5 and 5. NOTE: Assume the coeffcient of x2 is 1.
-
A sonographer presses a piezo - electric transducer against your skin. It operates at a frequency of 3 . 6 MHz . What is the measured time delay, per centimetre of depth of tissue, between the...
-
An ant is on top of a tree 23 meters tall, directly above her home, which is 0.3 meters below the ground.
-
HYPOTHETICAL SCENARIO: If Brazil, Russia, India, China, South Africa (BRICS) ultimately agree to: (1). End all tariffs and trade barriers between the BRICS. (2). Adopt a common external trade policy....
-
If tan theta = a, show that; cos theta sin^2 theta +cos theta sin^2 theta + cos^3 theta/sin theta = 1/a.
-
Consider the combustion of methanol below. If 64 grams of methanol reacts with 160 grams of oxygen, what is the CHANGE in volume at STP. 2CH3OH(g) + 3O2(g) 2CO2(g) + 4H2O(1) The volume decreases by...
-
What would happen to the divisor of the Dow Jones Industrial Average if FedEx, with a current price of around $95 per share, replaced AT&T (with a current value of about $31 per share)?
-
OceanGate sells external hard drives for $200 each. Its total fixed costs are $30 million, and its variable costs per unit are $140. The corporate tax rate is 30%. If the economy is strong, the firm...
-
Based on the formula below, which investment would you select if you were risk neutral? Investor "satisfaction" with portfolio increases with expected return and decreases with variance according to...
-
Recording effects of transactions in T-accounts Record the transactions below for Amena Company by recording debit and credit amounts directly in the following T-accounts: Cash; Accounts Receivable;...
-
Identifying type and normal balances of accounts For each of the following (1) identify the type of account as an asset, liability, equity, revenue, or expense, (2) enter debit (Dr.) or credit (Cr.)...
-
Preparing a trial balance After recording the transactions of Exercise 3-2 in T-accounts and calculating the ending balance of each account, prepare a trial balance. Use May 31, 2008, as its report...
Study smarter with the SolutionInn App