If the average return on common stocks was 13.3%, the average Treasury bill rate was 3.8%, and the average inflation rate was 3.2% what would be the expected nominal and approximate real market return for common stocks if the Treasury bill rate is expected to be 5.5% and the inflation rate is 4.1%? A) 9.5%, 13.6%. B) 13.6%, 9.5%. C) 90%, 10.9%. D) 14.6%, 9.1%.

If the average return on common stocks was 13.3%, the average Treasury bill rate was 3.8%, and the average inflation rate was 3.2% what would be the expected nominal and approximate real market return for common stocks if the Treasury bill rate is expected to be 5.5% and the inflation rate is 4.1%? A) 9.5%, 13.6%. B) 13.6%, 9.5%. C) 90%, 10.9%. D) 14.6%, 9.1%.

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

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Consider the following table for the period from 1973 through 1980. Inflation 8.80% 12.20 7.01 4.81 6.77 9.03 13.31 12.40 Year 1973 1974 1975 1976 1977 1978 1979 1980 T-bill return 6.93% 8.00 5.80 5.08 5.12 7.18 10.38 11.24 a. Calculate the average return for Treasury bills and the average annual Inflation rate (consumer price Index) for this period. Note: Do not round Intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. Calculate the standard deviation of Treasury bill returns and Inflation 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. c. Calculate the real return for each year. Note: A negative answer should be indicated by a minus sign. Do not round Intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. d. What is the average real return for Treasury bills? Note: A negative answer…
For the cost of equity (stock) is it better to use the current US Treasury bill rate or a longer-termgovernment bond rate as the risk-free rate of return?Does the rate you use as the risk-free rate have an impact on what market premium might beappropriate? Historically, large-company stocks have earned an average return of 12.1% per annum, while US Treasury bills and long-term government bonds have earned average returns of 3.5% and5.9% respectively.
You observe the following yield curve for Treasury securities: Maturity Yield 1 Year 4.80% 2 Years 6.00% 3 Years 6.70% 4 Years 7.20% 5 Years 7.90% Assume that the pure expectations hypothesis holds. What does the market expect will be the yield on 4-year securities, 1 year from today? O 8.68% O 8.18% 6.68% 7.68% O 7.18%
1.
If the stocks are less risky than bonds, then the risk premium on stock may be zero. Assuming that the risk-free interest rate is 2 percent, the growth rate of dividends is 1 percent and the current level of dividends is $70, use the dividend-discount model to compute the level of the S&P 500 that is warranted by the fundamentals. Compare the result to the current S&P 500 level of 4300, and explain one possible reason for the difference.
Currently, 3-year Treasury securities yield8.7%,7-year Treasury securities yield8.4%, and 10 -year Treasury securities yield8.2%. If the expectations theory is correct, what does the market expect will be the yield on 3-year Treasury securities seven years from today? 8.13%8.33%7.73%7.53%7.93%
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Consider the following data State of Nature Prob. Stock A Return Boom 0.3 16.00% Normal 0.6 14.20% Recession 0.1 8.00% If the current rate on a treasury bill is 4%, what is the risk premium on the stock? (Note: treasury bill rate is generally regarded as risk free rate) Group of answer choices 10.12% 8.14% 14.12% 11.12%
Assume the return on large-company stocks is currently 11.5 percent. The risk premium on large-company stocks is 8.6 percent and the inflation rate is 2.4 percent. What is the current risk-free rate of return
If the expected return on the market is 9.38 percent, the inflation rate is 0.63 percent, the risk - free rate is 2.95 percent, and Big Madden common stock has a beta of 1.06, then what is the expected return for Big Madden stock?
34.The real risk-free rate of interest is 3%, and it is expected to be constant over time. Expected inflation is expected to be 3% in Year 1, 4% in Year 2, and 5% in Year 3. Maturity risk premium is 0. What is the interest rate on Treasury securities with three year maturity? (Format: X.XX%)
The rate of return on CBO government bonds during the past year is 6.0%. The inflation rate during the past year is 2.8%. The real risk free rate of return is Select one: O a. None of these O b. 1.0311 O c. 25% O d. 3.11% e. 1.25

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