The historical asset class returns presented in the chapter are not adjusted for inflation. What would happen to the estimated risk premium if we did account for inflation? The returns are also not adjusted for taxes. What would happen to the returns if we accounted for taxes? What would happen to the volatility?
Answer to relevant QuestionsUsing the following returns, calculate the average returns, the variances, and the standard deviations for X andY:You bought a stock three months ago for $43.18 per share. The stock paid no dividends. The current share price is $46.21. What is the APR of your investment? The EAR? A broker has advised you not to invest in oil industry stocks because they have high standard deviations. Is the broker’s advice sound for a risk-averse investor like yourself? Why or why not?A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7 percent and a standard deviation of 10 percent. The risk-free rate is 4 percent, and the expected return on the market ...Consider the following statement: For the APT to be useful, the number of systematic risk factors must be small. Do you agree or disagree with this statement? Why?
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