Question

Stock market Returns

What kind of returns might you expect in the stock market? One way to measure how the stock market has performed is to examine the rate of return of the S&P 500 Index. To see historical prices of the S&P 500 Index, go to Yahoo! Finance (finance.yahoo.com (Links to an external site.)Links to an external site.) and click on the “S&P” link on the top left-hand side. Then click “Historical Prices” on the left menu, select “Monthly” prices, and click the “Get Prices” button.

Required: Compute the 1-year, 5-year, and 10-year returns over time. Include the results of your calculations in the discussion. What do you conclude about the returns during each of these periods?

Answer 1

The S&P Index -1 Year return : (2776.42-2278.87)/2278.87 * 100 = 21.83%

The S&P Index- 5 Year return : (2776.42-1514.68)/1514.68 = 83.30%. Annualized 5-Year Return = 83.30/5 = 16.67%

The S&P Index - 10 Year return : (2776.42-1378.55)/1378.55 = 101.40%. Annualized 10-Year Return = 101.40/10 = 10.14%

Conclusion: The last one year return has been above average due to the reducing in tax rates by the present administration. The five year returns have also been magnified to the large rally in the last one year. A 10-year return of 10.14% is realistic expectation going forward.