Question

# Use the following table: Series Average return Large stocks 11.96 % Small stocks 16.66 Long-term corporate...

Use the following table: Series Average return Large stocks 11.96 % Small stocks 16.66 Long-term corporate bonds 6.33 Long-term government bonds 6.10 U.S. Treasury bills 3.93 Inflation 3.10

a. Determine the return on a portfolio that was equally invested in large-company stocks and long-term corporate bonds. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

b. What was the return on a portfolio that was equally invested in small stocks and Treasury bills? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

The following are the average returns given in the question:

 Series Average Retuns Large stocks 11.96% Small stocks 16.66% Long-term corporate bonds 6.33% Long-term government bonds 6.10% Treasury bills 3.93% Inflation 3.10%

a) The return on a portfolio that was equally invested in large-company stocks and long-term corporate bonds is:

Return = (11.96% + 6.33%)/2 = 9.15%

Inflation adjusted returns = [(1+9.15%)/(1+3.10%)]-1 = 5.87%

b) The return on a portfolio that was equally invested in small stocks and Treasury bills is:

Return = (16.66% + 3.93%)/2 = 10.30%

Inflation adjusted returns = [(1+10.3%)/(1+3.10%)]-1 = 6.98%

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