Question

In: Finance

The stock market and the bond market. Over the period 1928-2013, investments in an index of...

The stock market and the bond market. Over the period 1928-2013, investments in an index of the Standard and Poor’s 500 stocks have given annual returns of 9.55%, investments in 10-year Treasury Bonds have given a return of 4.93%, and investments in 3-month Treasury bills have yielded 3.55%.

a. (1 point) Which is the most risky of these investments? Describe the risks associated with each investment. Do you think that risk explains the different rates of return?

b. (1 point) Explain which is the most liquid of these investments? Do you think this explains the different rates of return?

c. (1 point) You can buy common stocks only from one of 1366 brokers with a seat on the New York Stock Exchange; treasury bills and bonds are purchased through a broker or directly from the United States government. Do you think these differences might explain the different rates of return?

d. (1 point) How might these different rates of return encourage or discourage the efficient allocation of liquidity and investment resources?

Solutions

Expert Solution

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

a. Explain why the rising percentage of passive investments in         the stock market (Index...
a. Explain why the rising percentage of passive investments in         the stock market (Index funds and ETFs) will decrease     market efficiency. Explain market efficiency first then               answer the question. b. You are investing in an ETF that tracks the US stock      market, what would you recommend doing in a down cycle      and why? c) Explain why active bond investments would outperform      passive ones (bond index funds and bond ETFs)?
Over long periods, stock investments have tended to substantially outperform bond investments. However, it is not...
Over long periods, stock investments have tended to substantially outperform bond investments. However, it is not at all uncommon to observe investors with long horizons holding their investments entirely in bonds. Are such investors irrational? Why or Why not? Illustrate with real-life examples.
We have $1000 to invest, and three possible investments - a stock index fund, a bond...
We have $1000 to invest, and three possible investments - a stock index fund, a bond index fund, and a money market.. Average returns on the stock index fund, the bond index fund, and the money market fund are 8%, 5%, and 2% respectively. Total investment in the stock index fund and the bond index fund should not exceed 80% of available funds. Total investments in the bond index fund and the money market fund should be at least 30%...
You are contemplating investments in the stock of Clorox and in the S&P 500 index (a...
You are contemplating investments in the stock of Clorox and in the S&P 500 index (a collection of stocks approximately representing the overall market). The Clorox required return (calculated using the capital asset pricing model or CAPM) is 18%, the Clorox beta is .95, and its bonds are rated A. The standard deviation of returns for Clorox stock is 14%. Its payout ratio is 65% and its sales are expected to grow by 7% during the next year. The S&P...
1. We have seen that over long periods, stock investments have tended to substantially outperform bond...
1. We have seen that over long periods, stock investments have tended to substantially outperform bond investments. However, it is common to observe investors with long horizons holding portfolios composed entirely of bonds. Are such investors irrational? 2. Why might long term investors prefer bonds over stocks? Is one better than the other? Explain your position.
When the stock market is going up over a long period of time, investors can become...
When the stock market is going up over a long period of time, investors can become complacent about the risks of being a stockholder. After the significant decline of the stock market in 2008, people have begun to rethink the risk involved in owning stock. What kinds of risks do the owners of publicly-traded companies face? What could you do, as an investor, to continue to invest in the market but minimize your risk
When the stock market is going up over a long period of time, investors can become...
When the stock market is going up over a long period of time, investors can become complacent about the risks of being a stockholder. After the significant decline of the stock market in 2008, people have begun to rethink the risk involved in owning stock. What kinds of risks do the owners of publicly-traded companies face? What could you do, as an investor, to continue to invest in the market but minimize your risk?
When the stock market is going up over a long period of time, investors can become...
When the stock market is going up over a long period of time, investors can become complacent about the risks of being a stockholder. After the significant decline of the stock market in 2008, people have begun to rethink the risk involved in owning stock. What kinds of risks do the owners of publicly-traded companies face? What could you do, as an investor, to continue to invest in the market but minimize your risk?
. When PML-N government took over in 2013, CPI (consumer price index) was 569. When it...
. When PML-N government took over in 2013, CPI (consumer price index) was 569. When it left in 2018, CPI was 722. What was the annual inflation rate during 5 year of PML-N government? II. (a). You have 10,000 in bank, you want to save 500/yr , bank pays 20% / yr interest. In how many years your bank balance would double. (b). If you want your 10,000 to become 50,000 instead of doubling, and you want to save 500...
You are considering three investments. The first is a bond that is selling in the market...
You are considering three investments. The first is a bond that is selling in the market at $1,200. The bond has a $1,000 par value, pays interest semi-annually at 10%, and is scheduled to mature in 10 years. For bonds of this risk class you believe that a 12% rate of return should be required. The second investment that you are analysing is a preference share ($100 par value) that sells for $95 and pays an annual dividend of $10....
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT