Equities (shares) are riskier than government bonds, and therefore they have a higher rate of return. Discuss in a few sentences, recognising that in June 2011, the Dow Jones Index was below its peak in 2000
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Equities (shares) are riskier than government bonds, and therefore they have a higher
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- Benjamin Graham, the father of value investing, once said, “In the short run, the market is a voting machine, but in the long run, the market is a weighing machine.” In this quote, Benjamin Graham was referring to the key difference between the “price” and the “value” of a security. In November 2006, Citigroup’s stock (NYSE: C) was trading at $49.59. Following the credit crisis of 2007–2008 and by the end of October 2009, Citigroup’s stock price had plummeted to $4.27. Several banks went under, and others saw their stock prices lose more than 60% of their value. Based on your understanding of stock prices and intrinsic values, which of the following statements is true? The intrinsic value of a stock is based only on perceived investor returns. A stock’s market price is often based on investors’ perceived risk in the company. You can estimate the value of a company’s stock using models such as the corporate valuation model and the dividend discount model.…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.Some investors use the Sharpe ratio as a way of comparing the benefits of owning shares of stock in a company to the risks. The Sharpe ratio of a stock is defined as the ratio of the difference between the mean return on the stock and the mean return on government bonds (called the risk-free rate rf ) to the SD of the returns on the stock. The mean return on government bonds is rf = 0.03% per day. The table below describes the daily return of three stocks. Date APPLE. TESLA GM 01/10/20 0.85% 4.46% 2.67% 02/10/20 -3.23% - 7.38% 0.26% 05/10/20 3.08% 2.55% 1.64% 06/10/20 -2.87% -2.75% -1.81% 07/10/20 1.70% 2.73% 4.01% 08/10/20 -0.10% 0.15% 1.87% 09/10/20 1.74% 1.90% -0.16% 12/10/20 6.35% 1.91% 0.16% 13/10/20 -2.65% 0.98% -1.06% 14/10/20 0.07% 3.28% -0.63% 15/10/20 -0.40% -2.69% 2.90% 16/10/20 -1.40% -2.05%…
- 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.Stock prices and intrinsic values Benjamin Graham, the father of value investing, once said, “In the short run, the market is a voting machine, but in the long run, the market is a weighing machine.” In this quote, Benjamin Graham was referring to the key difference between the “price” and the “value” of a security. In November 2006, Citigroup’s stock (NYSE: C) was trading at $49.59. Following the credit crisis of 2007–2008 and by the end of October 2009, Citigroup’s stock price had plummeted to $4.27. Several banks went under, and others saw their stock prices lose more than 60% of their value. Q1. Based on your understanding of stock prices and intrinsic values, which of the following statements is true? a. A stock’s market price is often based on investors’ perceived risk in the company. b. The intrinsic value of a stock is based only on perceived investor returns. Q2. You can estimate the value of a company’s stock using models such as the…Stock prices and intrinsic values Benjamin Graham, the father of value investing, once said, “In the short run, the market is a voting machine, but in the long run, the market is a weighing machine.” In this quote, Benjamin Graham was referring to the key difference between the “price” and the “value” of a security. In November 2006, Citigroup’s stock (NYSE: C) was trading at $49.59. Following the credit crisis of 2007–2008 and by the end of October 2009, Citigroup’s stock price had plummeted to $4.27. Several banks went under, and others saw their stock prices lose more than 60% of their value. Based on your understanding of stock prices and intrinsic values, which of the following statements is true? A stock’s intrinsic value is based on the fundamental cash flows and the company’s risk. OR The intrinsic value of a stock is based only on the perceived risk in the company. You can estimate the value of a company’s stock using models such as the…
- Stock prices and intrinsic values Benjamin Graham, the father of value investing, once said, “In the short run, the market is a voting machine, but in the long run, the market is a weighing machine.” In this quote, Benjamin Graham was referring to the key difference between the “price” and the “value” of a security. In November 2006, Citigroup’s stock (NYSE: C) was trading at $49.59. Following the credit crisis of 2007–2008 and by the end of October 2009, Citigroup’s stock price had plummeted to $4.27. Several banks went under, and others saw their stock prices lose more than 60% of their value. Q1. Based on your understanding of stock prices and intrinsic values, which of the following statements is true? a. A stock’s intrinsic value is based only on the perceived risk of a stock. b. A stock’s intrinsic value is based on true investor returns. Q2. You can estimate the value of a company’s stock using models such as the corporate valuation model…Over 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 bondsAmong the following types of investments, small-company stocks, large-company stocks, long-term corporate bonds, long-term government bonds, and U.S. Treasury bills, small-company stocks had a risk premium of 13.2 percent for the past 90 years. What does the term "risk premium" mean? Is the risk premium on small-company stocks considered to be relatively high or relatively low when compared to other investment classes? Explain why.
- Historical stock returns show that small - company stocks produced an average return of 17.4 percent, inflation averaged 3.1 percent, U.S. Treasury bills returned an average 3.8 percent, and long - term corporate bonds returned 6.2 percent. What was the risk premium on small - company stocks for that period?Use the following table: Series Average return Large stocks 11.76 % Small stocks 16.46 Long-term corporate bonds 6.23 Long-term government bonds 6.10 U.S. Treasury bills 3.83 Inflation 3.10 a. Determine the return on a portfolio that was equally invested in large-company stocks and long-term corporate bonds. b. What was the return on a portfolio that was equally invested in small stocks and Treasury bills?Financial analysts have estimated the returns on shares of the Goldday Corporation and the overall market portfolio under two economic states nature as follows. For Goldday the state dependent returns are -0.06 in recession, and 0.10 in an economic boom. For the market the state dependent returns are -0.08 in recession,and 0.18 in boom. The analyst estimates that the probability of a recession is 0.50 while the probability of an economic boom is 0.50. Compute the standard deviation of the market._____________ * State your answer in decimal form, working your analysis using at least four decimal places of accuracy.