Question

What should we use for expected market return?

10-year arithmetic average return of S&P 500 index. |
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10-year geometric average return of S&P 500 index. |
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80-year arithmetic average return of S&P 500 index. |
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80-year geometric average return of S&P 500 index. |

Answer #1

**Solution**

Option B is the solution

1. What should we use for expected market return?
a. 10-year arithmetic average return of S&P 500 index.
b. 10-year geometric average return of S&P 500 index.
c. 80-year arithmetic average return of S&P 500 index.
d. 80-year geometric average return of S&P 500 index.

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Portfolio
S&P 500
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10%
Standard Deviation
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Beta
1.2
1
Risk-free rate =
2%
Sharpe ratio for the portfolio and S&P 500 index
Treynor ratio for the portfolio and S&P 500 index
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Total return Year Total return 2000 16.0% 2010 2.0% 2001 8.0% 2011
3.0% 2002 -3.0% 2012 3.0% 2003 1.0% 2013 4.0% 2004 5.0% 2014 5.0%
2005 21.0% 2015 4.0% 2006 43.0% 2016 3.0% 2007 4.9% 2017 3.5% 2008
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