The following table contains the historic returns from a
portfolio consisting of large stocks and a portfolio consisting of
long-term Treasury bonds over the last 20 years. T-bills returns
represent risk-free returns. Analyze the risk-return trade-off that
would have characterized these portfolios. The following dataset is
also available in Excel format in Module 3 Resources on Canvas.
Returns in the dataset are in percents. For example, 31.33 means
31.33% per year.
Year | Large Stock | Long-Term T-Bonds |
T-Bills |
1997 | 31.33 | 11.312 | 5.26 |
1998 | 24.27 | 13.094 | 4.86 |
1999 | 24.89 | -8.4734 | 4.68 |
2000 | -10.82 | 14.4891 | 5.89 |
2001 | -11.00 | 4.0302 | 3.78 |
2002 | -21.28 | 14.6641 | 1.63 |
2003 | 31.76 | 1.2778 | 1.02 |
2004 | 11.89 | 5.1862 | 1.20 |
2005 | 6.17 | 3.1030 | 2.96 |
2006 | 15.37 | 2.2713 | 4.79 |
2007 | 5.50 | 9.6431 | 4.67 |
2008 | -36.92 | 17.6664 | 1.47 |
2009 | 29.15 | -5.8278 | 0.10 |
2010 | 17.80 | 7.4457 | 0.12 |
2011 | 1.01 | 16.6015 | 0.04 |
2012 | 16.07 | 3.5862 | 0.06 |
2013 | 35.18 | -6.9025 | 0.03 |
2014 | 11.37 | 10.1512 | 0.02 |
2015 | -0.19 | 1.0665 | 0.01 |
2016 | 13.41 | 0.7039 | 0.19 |
c. Estimate the Sharpe ratio of large stocks and long-term T-bonds, respectively. (Round your answers to 2 decimal places.)
d. Now assume that you have always invested half of your wealth in the stock and the other half in the T-bonds. Estimate the Sharpe ratio of your portfolio. (Round your answers to 2 decimal places.)
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