Question: Table 1: Selected Performance Statistics, 1926-1988 Series Annual Return (Geometric Mean Rate of Return) Highest Annual Return Lowest Annual Return Standard Deviation of Annual Returns
Table 1: Selected Performance Statistics, 1926-1988
| Series | Annual Return (Geometric Mean Rate of Return) | Highest Annual Return | Lowest Annual Return | Standard Deviation of Annual Returns |
|---|---|---|---|---|
| Common Stock | 10.0% | 54.0% | -43.3% | 20.9% |
| Small Company Stocks | 12.3% | 142.9% | -49.8% | 35.6% |
| Long-term Corporate Bonds | 5.0% | 43.8% | -8.1% | 8.4% |
| US Treasury Bills | 3.5% | 14.7% | 0.0% | 3.3% |
Source: Malkiel, Burton Gordon. A Random Walk Down Wall Street. New York: Norton, 1973. Page 64.
- Assuming a risk-free rate of 3.5%, calculate the Sharpe Ratio for each of the asset types above. Show your calculations. Which asset class offers the greatest return per unit of risk?
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