Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Transcribed Image Text:You have a portfolio with an asset allocation of 62 percent stocks, 30 percent long-term Treasury bonds, and 8 percent T-bills. Use
these weights and the returns given in the above table to compute the return of the portfolio in the year 2010 and each year since.
Then compute the average annual return and standard deviation of the portfolio.
Note: Do not round intermediate calculations. Round your answers to 2 decimal places.
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Average
Standard deviation
Portfolio Return
%
%
%
%
%
%
%
%
%
%
%
%
Transcribed Image Text:Annual and Average Returns for Stocks, Bonds, and T-Bills, 1950 to 2019
Long-Term
Stocks Treasury Bonds
12.7%
20.9
8.7
1950 to 2019 Average
1950 to 1959 Average
1960 to 1969 Average
1970 to 1979 Average
1988 to 1989 Average
1990 to 1999 Average
2000 to 2009 Average.
2010 Annual Return.
2011 Annual Return
2012 Annual Return
2013 Annual Return
2014 Annual Return.
2015 Annual Returni
2016 Annual Return.
2017 Annual Return.
2018 Annual Return.
2019 Annual Return
2010 to 2019 Average
7.5
18.2
19.0
0.9
15.1
2.1
16.0
32.4
13.7
1.4
12.0
21.8
-4.4
31.5
14.2
6.6%
0.0
1.6
5.7
13.5
9.5
8.0
9.4
29.9
3.6
-12.7
25.1
-1.2
1.2
8.4
-1.8
14.8
7.7
T-bills
4.2%
2.0
4.0
6.3
8.9
4.9
2.7
0.01
0.02
0.02
0.07
0.05
0.21
0.51
1.39
1.94
2.06
0.63
You have a portfolio with an asset allocation of 62 percent stocks, 30 percent long-term Treasury bonds, and 8 percent T-bills. Use
these weights and the returns given in the above table to compute the return of the portfolio in the year 2010 and each year since.
Then compute the average annual return and standard deviation of the portfolio.
Note: Do not round intermediate calculations. Round your answers to 2 decimal places.
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