INVESTMENTS-CONNECT PLUS ACCESS
11th Edition
ISBN: 2810022611546
Author: Bodie
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter 1, Problem 14PS
Summary Introduction
To state: Why one should invest in Treasury bills if the rate of
Introduction: People who reap benefits in the future by sacrificing current consumption make investments with the available money.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
The distribution of returns for which one of the following for the period of 1926-2006 produces
the widest bell curve (or distribution)?
O inflation.
O long-term government bonds
O large-company stocks
O U.S. Treasury bills.
small-company stocks
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?
Suppose interest rates on Treasury bonds rose from 5% to 9% as a result of higher interest rates in
Europe. What effect would this have on the price of an average company's common stock? (Hint: in your
explanation consider alternative investment to common stocks; a relatively riskless investment)
Chapter 1 Solutions
INVESTMENTS-CONNECT PLUS ACCESS
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- If inflation unexpectedly rises by 3%, would a corporation that had recently borrowed money by issuing fixed-rate bonds to pay for a new investment benefit or lose?arrow_forwardOver the period of 1926-2014, which one of the following investment classes had the highest volatility of returns? Multiple Choice Large-company stocks U.S. Treasury bills Small-company stocks Long-term corporate bonds Long-term government bondsarrow_forwardIn 1975, interest rates were 7.83% and the rate of inflation was 12.42% in the United States. What was the real interest rate in 1975? How would the purchasing power of your savings have changed over the year?arrow_forward
- Use the data in the tables below to answer the following questions: Average rates of return on Treasury bills, government bonds, and common stocks, 1900–2020. Portfolio Average Annual Rate of Return (%) Average Premium (Extra return versus Treasury bills) (%) Treasury bills 3.7 Treasury bonds 5.4 1.7 Common stocks 11.5 7.8 Standard deviation of returns, 1900–2020. Portfolio Standard Deviation (%) Treasury bills 2.8 Long-term government bonds 8.9 Common stocks 19.5 What was the average rate of return on large U.S. common stocks from 1900 to 2020? What was the average risk premium on large stocks? What was the standard deviation of returns on common stocks? Note: Enter your answer as a percent rounded to 1 decimal place.arrow_forwardBy roughly how much did housing prices fall during the financial crisis? what about the stock market?arrow_forwarda) Assume that the nominal return on U.S. government T-bills was 10% during 2002, when the rate of inflation was 6%. Calculate the real risk-free rate of return on these T-bills. Show your working. 1 a) Which statement is FALSE regarding the trading of securities and bonds in the U.S. and other markets? I. Prior to 1970, the securities traded in the U.S. stock and bond markets comprised about 65% of all the securities available in world capital markets II. By 1998, U.S. bonds and equities accounted for 42.3% of the total securities market versus 47.3% for nondollar bonds and stocks II. If you consider only the stock and bond market, the U.S. proportion of this combined market is 47% in 1998. Explain your correct answer. b) Consider the following information: The possible rate of return for a portfolio for an investment is shown below. Possible rate of return Probability 0.25 0.25 0.09 0.11 0.13 0.16 0.25 0.25 What is the expected rate of return for the investment?arrow_forward
- What reforms to the financial system might reduce its exposure to systemic risk?arrow_forwardMehra and Prescott (1985) calculated a historical equity premium of 6.2% in the United States for the period 1889–1978. This premium is much higher compared to that of the bond in the period. How can we explain this phenomenon?arrow_forwardBhupatbhaiarrow_forward
- How can studying the historical returns of stocks, bonds, and inflation increase your understanding of today’s financial markets?arrow_forwardFor 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.arrow_forwardIs the 10-year US Government bond rate currently outperforming the 3-month US Government rate. If so, what does this mean? what is the bond market’s prediction for the future level of economic activity? Is its prediction weaker or stronger than that of the stock market?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Investing For Beginners (Stock Market); Author: Daniel Pronk;https://www.youtube.com/watch?v=6Jkdpgc407M;License: Standard Youtube License