Assume that over the last several decades, the annual returns on large-company commonstocks averaged 12.1 percent, small-company stocks averaged 16.5 percent, long-termgovernment bonds averaged 6 percent, and U.S. T-bills averaged 3.4 percent. What was theaverage excess return or risk premium earned by long-term government bonds, and small-company stocks respectively?O2.6%: 13.1%2.6%; 4.4 %1.8%; 13.3%1.9%; 5.1%

Excess return earned by long-term government bonds = (long-term government bonds -U.S. T-bills)…

Answered: Assume that over the last several…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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In which Market debt and stocks are traded and maturity period is more than a year? A. Money Market B. Share Market C. Short Term Market D. Capital Market
How can the behavior of market interest rates and bond returns over the past 50 years be described? Do swings in market interest rates have any bearing on bond returns?
You know that the return of Carla Vista Cyclicals common shares is 1.6 times as sensitive to macroeconomic information as the return of the market. If the risk-free rate of return is 2.80 percent and market risk premium is 5.71 percent, what is Carla Vista Cyclicals' cost of common equity capital? (Round intermediate calculation to 5 decimal places, e.g. 1.25140 and final answer to 2 decimal places, e.g. 15.25%.) Cost of common equity capital %
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. What average risk premium did you earn? Is this good or bad and why?
The average annual return on the S&P 500 Index from 1996 to 2005 was 13.27 percent. The average annual T-bill yield during the same period was 3.92 percent. What was the market risk premium during these ten years? (Round your answer to 2 decimal places.)
book nt Consider the following table for a period of six years: Returns U.S. Treasury Year Large-Company Stocks Bills 1 -14.99% 7.35% 2 -26.56 8.02 3 37.29 5.93 4 23.99 5.37 5 -7.28 5.48 6 6.63 7.73 a-1. Calculate the arithmetic average returns for large-company stocks and T-bills over this time period. Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a-2. Calculate the standard deviation of the returns for large-company stocks and T-bills over this time period. Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. int Large-company stocks T-bills a-1. Arithmetic average return a-2. Standard deviation % % % % ences Calculate the observed risk premium in each year for the large-company stocks versus the T-bills. b-1. What was the arithmetic average risk premium over this period? Note: A negative answer should be indicated by a minus sign. Do not…
Over a certain period, large-company stocks had an average return of 12.79 percent, the average risk-free rate was 2.62 percent, and small-company stocks averaged 17.61 percent. What was the risk premium on small-company stocks for this period?
Suppose interest rates on Treasury bonds rose from 5% to 9% as a result of higher interest ratesin Europe. What effect would this have on the price of an average company’s common stock?
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