Question

You invested in long-term corporate bonds and earned 6.1 percent. During that same time period, large-company...

You invested in long-term corporate bonds and earned 6.1 percent. During that same time period, large-company stocks returned 12.6 percent, long-term government bonds returned 5.7 percent, U.S. Treasury bills returned 4.2 percent, and inflation averaged 3.8 percent.

1. What average risk premium did you earn?

2. Is this good or bad and why?

Please show your work and explain.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

1. Average Premium earned = Long term corporate bonds - Treasury Bills rate

= 6.1% - 4.2%

= 1.9%

So, The average premium is 1.9%

Note: The treaury bills are issued by the government and considered as risk free security and to calculate the risk premium we does not consider the return on the stocks, while we take long term corporate bonds in consideration.

2. It is not good because the Risk premium is 1.9% while the inflation rate is 3.8%, So the investor would be in loss of he consider the real returns.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
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...
Use the following table: Series Average return Large stocks 12.04 % Small stocks 16.74 Long-term corporate...
Use the following table: Series Average return Large stocks 12.04 % Small stocks 16.74 Long-term corporate bonds 6.37 Long-term government bonds 6.10 U.S. Treasury bills 3.97 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.) Portfolio Return             % b. What was the return on a portfolio that was equally invested...
Consider the following table for the total annual returns for a given period of time. Series...
Consider the following table for the total annual returns for a given period of time. Series Average return Standard Deviation Large-company stocks 11.7 % 20.6 % Small-company stocks 16.4 33.0 Long-term corporate bonds 5.1 8.4 Long-term government bonds 6.1 9.4 Intermediate-term government bonds 5.6 5.7 U.S. Treasury bills 3.8 3.1 Inflation 3.1 4.2 What range of returns would you expect to see 95 percent of the time for long-term corporate bonds? (A negative answer should be indicated by a minus...
Large company stocks 12% Small company stocks 16.6% Long term corporate bonds 6.3% Long term government...
Large company stocks 12% Small company stocks 16.6% Long term corporate bonds 6.3% Long term government bonds 6.0% US treasury bills 3.4% Inflation 3.0% a. What was the average annual return on large-company stock from 1926 through 2016 in nominal terms? (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 average annual return on large-company stock from 1926 through 2016 in real terms? (Do not round...
Select one of the following asset classes: Large-company stocks, small-company stocks, long-term corporate bonds, Long-term U.S....
Select one of the following asset classes: Large-company stocks, small-company stocks, long-term corporate bonds, Long-term U.S. government bonds, or U.S. Treasury Bills. Describe a particular aspect of your chosen asset class from one of the following: 1) Provide the definition 2) Provide an example that belongs to the class 3) Describe the history of total returns 4) Describe the historical mean and standard deviation
Consider the following table for the total annual returns for a given period of time.   Series...
Consider the following table for the total annual returns for a given period of time.   Series Average return Standard Deviation   Large-company stocks 10.8 % 21.1 %   Small-company stocks 16.4 33.0   Long-term corporate bonds 6.2 8.4   Long-term government bonds 6.1 9.4   Intermediate-term government bonds 5.6 5.7   U.S. Treasury bills 3.8 3.1   Inflation 3.1 4.2 Requirement 1: What range of returns would you expect to see 95 percent of the time for large-company stocks? (Negative amount should be indicated by a minus...
Long-term (nominal) U.S. Treasury Bonds ------------ in the short-to-medium term. Short-term (nominal) U.S. T-Bills ----------  in the...
Long-term (nominal) U.S. Treasury Bonds ------------ in the short-to-medium term. Short-term (nominal) U.S. T-Bills ----------  in the short-to-medium term. U.S. stocks ----------  in the short-to-medium term. Options for blanks: Provide no/zero protection against inflation Provide good protection against inflation Are exported to inflation Suppose that your investment strategy is to buy a 15-year Treasury Inflation Protected Security (TIPS), hold it for 1 year, then sell it and buy another 15-year TIPS. You plan to repeat this process until you retire (in 45...
historical returns. Calculate the arithmetic average return of U.S. treasury bills, long-term government bonds, and large-company...
historical returns. Calculate the arithmetic average return of U.S. treasury bills, long-term government bonds, and large-company stocks for 1987 to 1996. which had the highest return? which had the lowest return?
Historical average returns for Large Company Common Stocks, Long Term Government Bonds, and US Treasury Bills...
Historical average returns for Large Company Common Stocks, Long Term Government Bonds, and US Treasury Bills for the period 10-year period of 1999 through 2008 are shown in the following table. Use these data to solve the next several problems. Year Large Common Stock Long Term Government Bonds US Treasury Bills 1999 0.2104 -0.0751 0.0480 2000 -0.0910 0.1722 0.0598 2001 -0.1189 0.0551 0.0333 2002 -0.2210 0.1515 0.0161 2003 0.2889 0.0201 0.0094 2004 0.1088 0.0812 0.0114 2005 0.0491 0.0689 0.0279 2006...
Question 6 (1 point) The average compound return earned per year over a multiyear period is...
Question 6 (1 point) The average compound return earned per year over a multiyear period is called the _____ average return Question 6 options: Arithmetic Geometric Standard Variant Real Question 7 (1 point) The average compound return earned per year over a multiyear period is called the _____ average return Question 7 options: Variant Geometric Arithmetic Real Standard Question 8 (1 point) The return earned in an average year over a multiyear period is called the _____ average return. Question...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT