Fundamentals of Corporate Finance, 9th edition
9th Edition
ISBN: 9781260151756
Author: Richard Brealey
Publisher: McGraw-Hill Education
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Question
Chapter 11, Problem 1QP
a)
Summary Introduction
To discuss: The average
a)
Expert Solution
Explanation of Solution
The average rate of return of country U large common stocks are 11.4% for the period of 1900 to 2015.
b)
Summary Introduction
To discuss: The average risk premium on big stocks.
b)
Expert Solution
Explanation of Solution
The average risk premium on big stock is 7.6% for the period of 1900 to 2015.
c)
Summary Introduction
To discuss: The market portfolio’s standard deviation of returns.
c)
Expert Solution
Explanation of Solution
The market portfolio’s standard deviation of returns is 19.9% for the period of 1900 to 2015.
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Students have asked these similar questions
Assume these are the stock market and Treasury bill returns for a 5-year period:
Year
Stock Market Return (%)
T-Bill Return (%)
2013
36.00
0.22
2014
15.40
0.22
2015
−5.20
0.22
2016
17.00
0.09
2017
26.00
0.11
Required:
a. What was the risk premium on common stock in each year?
b. What was the average risk premium?
c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)
Assume these are the stock market and Treasury bill returns for a 5-year period:
Year
Stock Market Return (%)
T-Bill Return (%)
2016
13.0
0.2
2017
21.0
0.8
2018
-6.2
1.8
2019
29.8
2.1
2020
20.6
0.4
Required:
What was the risk premium on common stock in each year?
What was the average risk premium?
What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)
What is the standard deviation of the returns on a stock given the following information?
State of Economy
Probability of State of Economy
Rate of Return if State Occurs
Boom
.08
.171
Normal
.70
.076
Recession
.22
.017
Chapter 11 Solutions
Fundamentals of Corporate Finance, 9th edition
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Similar questions
- The file Fortune500 contains data for profits and market capitalizations from a recent sample of firms in the Fortune 500 a. Prepare a scatter diagram to show the relationship between the variables Market Capitalization and Profit in which Market Capitalization is on the vertical axis and Profit is on the horizontal axis. Comment on any relationship between the variables. b. Create a trendline for the relationship between Market Capitalization and Profit. What does the trendline indicate about this relationship?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_forwardWhat is the standard deviation of the returns on a stock given the following information? Could you please show the work? State of Economy Probability of state of Economy Rate of return if state occurs Boom 0.3000 0.1500 Normal 0.6500 0.1200 Recession 0.0500 0.0600 Average 0.3333 0.1100arrow_forward
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- Need help what was the risk premium on common stock each year 2013 2014 2015 2016 2017 what was the average risk premium? what was the standard deviation of the risk premium?arrow_forwardName the econometric term used for estimating the correlation between today’s stock price and the price of previous days (lag prices).arrow_forwardYou were analyzing a stock and came up with the following probability distribution of the stock returns. What is the coefficient of variation on the company's stock?Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. State of the Economy Probability of State Occurring Stock's Expected Return Boom 25.00% 24.15% Normal 46.00% 17.40% Recession 29.00% 6.20% Group of answer choicesarrow_forward
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