Exhibit 1 1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Security Annual Percentage Return U S government T bills 3 04 Long term government bonds 5 75 Long term corporate bonds 6 80 Large capitalization common stocks 13 50 Small capitalization common stocks 15 60 The annual rate of inflation is 2 Refer to Exhibit 1 1 a What is the real return on long term corporate bonds b What is the real return on T bills c What is the real return on small capitalization stocks d What is the real return on large capitalization stocks Exhibit 1 2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Real Returns Investment Real Annual Return Large company stock 6 50 Small capitalization stock 8 60 Long term corporate bonds 3 60 Long term government bonds 2 80 U S Treasury bills 1 03 The annual rate of inflation is 2 5 Refer to Exhibit 3 2 a What is the large company stock nominal return b What is the T bill nominal return c What is the long term Treasury bond nominal return d What is the small capitalization stock nominal return A return series has an arithmetic mean of 12 8 and standard deviation of 7 8 Assuming the returns are normally distributed what, is the range of returns that an investor would expect to receive 90 of the time Solve the following A return series has an arithmetic mean of 10 5 and standard deviation of 13 Assuming the returns are normally distributed what, is the range of returns that an investor would expect to receive 95 of the time What is the 95 percent confidence interval for an investment with an expected return of 9 percent and a standard deviation of 15 You are trying to decide between a par value corporate bond carrying a coupon rate of 6 25 per year and a par value municipal bond that pays an annual coupon rate of 4 75 Assuming all other factors are the same and you are in the 28 tax bracket, which bond should you choose and why What range of returns would an investor expect to achieve 99 of the time on an investment with an expected return of 11 and a standard deviation of 16 If the nominal return on an investment of common stocks was 11 and inflation was 2 5 annually, what was the real return on common stock If the real return for corporate bonds was 4 and the inflation rate was 2 , what is the nominal return for corporate bonds

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Question: Exhibit 1.1; USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Security Annual Percentage Return U.S. government T-bills 3.04 Long-term government bonds 5.75 Long-term corporate bonds

Security Annual Percentage Return

U.S. government T-bills 3.04

Long-term government bonds 5.75

Long-term corporate bonds 6.80

Large capitalization common stocks 13.50

Small capitalization common stocks 15.60

The annual rate of inflation is 2%.

Refer to Exhibit 1.1.

a. What is the real return on long-term corporate bonds?

b. What is the real return on T-bills?

c. What is the real return on small capitalization stocks?

d. What is the real return on large capitalization stocks?

Real Returns

Investment Real Annual Return

Large company stock 6.50%

Small capitalization stock 8.60%

Long-term corporate bonds 3.60%

Long-term government bonds 2.80%

U.S. Treasury bills 1.03%

The annual rate of inflation is 2.5%.

Refer to Exhibit 3.2

a. What is the large company stock nominal return?

b. What is the T-bill nominal return?

c. What is the long-term Treasury bond nominal return?

d. What is the small capitalization stock nominal return?

A return series has an arithmetic mean of 12.8% and standard deviation of 7.8%. Assuming the returns are normally distributed what, is the range of returns that an investor would expect to receive 90% of the time?

Solve the following;
1. A return series has an arithmetic mean of 10.5% and standard deviation of 13%. Assuming the returns are normally distributed what, is the range of returns that an investor would expect to receive 95% of the time?
2. What is the 95 percent confidence interval for an investment with an expected return of 9 percent and a standard deviation of 15%?

You are trying to decide between a par value corporate bond carrying a coupon rate of 6.25% per year and a par value municipal bond that pays an annual coupon rate of 4.75%. Assuming all other factors are the same and you are in the 28% tax bracket, which bond should you choose and why?

What range of returns would an investor expect to achieve 99% of the time on an investment with an expected return of 11% and a standard deviation of 16%?