Question

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	0.1579	0.0028	0.0497
2007	0.0549	0.1085	0.0452
2008	-0.3700	0.1424	0.0124

1. Calculate the average return for Large Company Common Stocks for the 10-year period.

2. Calculate the average return for Long Term Corporate Bonds for the 10-year period.

3. Calculate the average return for US T-bills for the 10-year period.

4. Calculate the holding period return for Large Company Common Stocks for the 10-year period.

5. Calculate the holding period return for Long Term Corporate Bonds for the 10-year period.

Answer 1

for first three Quetions to calculate avarge return, we will use below formula

Average return = sum of 10 years return /10

So,

1. average return for Large Company Common Stocks for the 10-year period= 0.00691

2. average return for Long Term Corporate Bonds for the 10-year period =0.07276

3. average return for US T-bills for the 10-year period = 0.03132

To calculate Holding perdiod return, we will use below formulas.

Here,

So,

4. holding period return for Large Company Common Stocks for the 10-year period would be

HPR= [(1.2104)*(0.909)*(0.88).......*(0.63)]-1

HPR= 10.07%

HPR= 0.10

5. holding period return for Long Term Corporate Bonds for the 10-year period.

HPR= (0.92)*(1.17)*.....(1.14)

HPR= 10.72%

HPR= 0.107