Question
In: Finance
The following table contains the historic returns from a portfolio consisting of large stocks and a...
The following table contains the historic returns from a
portfolio consisting of large stocks and a portfolio consisting of
long-term Treasury bonds over the last 20 years. T-bills returns
represent risk-free returns. Analyze the risk-return trade-off that
would have characterized these portfolios. The following dataset is
also available in Excel format in Module 3 Resources on Canvas.
Returns in the dataset are in percents. For example, 31.33 means
31.33% per year.
| Year | Large Stock | Long-Term T-Bonds |
T-Bills |
| 1997 | 31.33 | 11.312 | 5.26 |
| 1998 | 24.27 | 13.094 | 4.86 |
| 1999 | 24.89 | -8.4734 | 4.68 |
| 2000 | -10.82 | 14.4891 | 5.89 |
| 2001 | -11.00 | 4.0302 | 3.78 |
| 2002 | -21.28 | 14.6641 | 1.63 |
| 2003 | 31.76 | 1.2778 | 1.02 |
| 2004 | 11.89 | 5.1862 | 1.20 |
| 2005 | 6.17 | 3.1030 | 2.96 |
| 2006 | 15.37 | 2.2713 | 4.79 |
| 2007 | 5.50 | 9.6431 | 4.67 |
| 2008 | -36.92 | 17.6664 | 1.47 |
| 2009 | 29.15 | -5.8278 | 0.10 |
| 2010 | 17.80 | 7.4457 | 0.12 |
| 2011 | 1.01 | 16.6015 | 0.04 |
| 2012 | 16.07 | 3.5862 | 0.06 |
| 2013 | 35.18 | -6.9025 | 0.03 |
| 2014 | 11.37 | 10.1512 | 0.02 |
| 2015 | -0.19 | 1.0665 | 0.01 |
| 2016 | 13.41 | 0.7039 | 0.19 |
a. Estimate the annual risk premium of large
stocks, and T-bonds?. (Round your answers to 2 decimal
places.)
|
b. Estimate the annual volatility of large stocks
and long-term T-bonds, respectively. (Round your answers to
2 decimal places.)
|
c. Estimate the Sharpe ratio of large stocks and long-term T-bonds, respectively. (Round your answers to 2 decimal places.)
|
d. Now assume that you have always invested half of your wealth in the stock and the other half in the T-bonds. Estimate the Sharpe ratio of your portfolio. (Round your answers to 2 decimal places.)
|
Solutions
Expert Solution
Formula Used:-
Average Return=AVERAGE(C2:C21)
Risk Premium=C23-$E$23
Volatility=STDEV(C3:C21)
Sharpe ratio=(C24/C25)
Average return on portfolio=AVERAGE(F3:F21)
Std of Portfolio=STDEV(F3:F21)
Sharpe Ratio=(C27-E23)/C28
jeff jeffy answered 2 years agoRelated Solutions
The following table contains the historic returns from a portfolio consisting of large stocks and a...
The following table contains the historic returns from a
portfolio consisting of large stocks and a portfolio consisting of
long-term Treasury bonds over the last 20 years. T-bills returns
represent risk-free returns. Analyze the risk-return trade-off that
would have characterized these portfolios. The following dataset is
also available in Excel format in Module 3 Resources on Canvas.
Returns in the dataset are in percents. For example, 31.33 means
31.33% per year.
Year
Large Stock
Long-Term
T-Bonds
T-Bills
1997
31.33
11.312...
You own a portfolio consisting of the following stocks:
You own a portfolio consisting of the following stocks:
Stock % of Portfolio Beta Historical Return Required Return
1 13% 1.15 .11
2 44% 0.95 .08
3 19% 1.60 .14
4 24% 1.30 .12
The risk-free rate is 5% and the expected market return is 10%.
a. Calculate the required return for each stock.
b. Calculate the historical return on the portfolio.
c. Calculate the portfolio beta.
d. Calculate the required return...
The following table, contains annual returns for the stocks of ABC Corp. (ABC ) and XYZ...
The following table, contains annual returns for the stocks of
ABC Corp. (ABC ) and XYZ Corp. (XYZ ). The returns are
calculated using end-of-year prices (adjusted for dividends and
stock splits). Use the information for ABC Corp. (ABC ) and XYZ
Corp. (XYZ ) to create an Excel spreadsheet that calculates the
average returns over the 10-year period for portfolios comprised
of ABC and XYZ using the following, respective, weightings:
(1.0, 0.0), (0.9, 0.1). The average annual returns over...
The following table contains annual returns for the stocks of ABC Corp. (ABC) and Company B...
The following table contains annual returns for the stocks of
ABC Corp. (ABC) and Company B (B). The returns are calculated
using end-of-year prices (adjusted for dividends and stock
splits). Use the information for ABC Corp. (ABC) and Company B
(B) to create an Excel spreadsheet that calculates the average
returns over the 10-year period for portfolios comprised of ABC
and B using the following, respective, weightings: (1.0, 0.0),
(0.9, 0.1), (0.8, 0.2), (0.7, 0.3), (0.6, 0.4), (0.5, 0.5),
(0.4,...
Consider a portfolio consisting of the following three stocks: Portfolio Weight Volatility Correlation with Market Portfolio...
Consider a portfolio consisting of the following three
stocks:
Portfolio Weight
Volatility
Correlation with Market Portfolio
HEC Corp
0.26
13%
0.35
Green Midget
0.29
28%
0.52
Alive And Well
0.45
11%
0.54
The volatility of the market portfolio is 10% and it has an
expected return of 8%. The risk-free
rate is 3%.
Compute the beta and expected return of each stock.
Using your answer from part (a), calculate the expected return
of the portfolio.
What is the beta of...
Portfolio returns and deviations. Consider the following information on a portfolio of three stocks: State of...
Portfolio returns and deviations. Consider the following
information on a portfolio of three stocks:
State of
Probability
of
Stock A Rate of return Stock B
ROR Stock C ROR
Economy
State of Economy
Boom
.15
.02
.32
.60
Normal
.60
.10
.12
.20
Bust
.25
.16
-.11
-.35
a. If your portfolio is invested 40 percent each in A and B and
20 percent in C, what is the portfolio's expected return? the
variance? the standard deviation?
b. if...
Consider the following table for a period of six years: Returns Year Large-Company Stocks U.S. Treasury...
Consider the following table for a period of six
years:
Returns
Year
Large-Company Stocks
U.S. Treasury Bills
1
–14.99
%
7.35
%
2
–26.56
8.02
3
37.29
5.93
4
23.99
5.37
5
–7.28
5.48
6
6.63
7.73
Calculate the arithmetic average returns for large-company stocks
and T-bills over this time period. (Do not round
intermediate calculations and enter your answers as a percent
rounded to 2 decimal places, e.g., 32.16.)
Arithmetic
average returns
Large-company
stock
%
T-bills
%
Calculate...
Consider the following table for a period of six years. Returns Year Large-Company Stocks U.S. Treasury...
Consider the following table for a period of six years.
Returns
Year
Large-Company Stocks
U.S.
Treasury Bills
Year 1
–
15.39
%
7.43
%
Year 2
–
26.68
8.06
Year 3
37.37
6.01
Year 4
24.07
5.77
Year 5
–
7.44
5.52
Year 6
6.71
7.85
Requirement 1:
Calculate the arithmetic average returns for large-company
stocks and T-bills over this time period.
(Do not round intermediate calculations.
Enter your answers as a percentage rounded to 2
decimal places (e.g., 32.16).)...
Consider the following table for a period of six years: Returns Year Large-Company Stocks U.S. Treasury...
Consider the following table for a period of six years: Returns
Year Large-Company Stocks U.S. Treasury Bills 1 –15.69 % 7.49 % 2
–26.77 8.09 3 37.43 6.07 4 24.13 6.07 5 –7.56 5.55 6 6.77 7.94
Calculate the arithmetic average returns for large-company stocks
and T-bills over this time period. Arithmetic average returns
Large-company stock % T-bills % Calculate the standard deviation of
the returns for large-company stocks and T-bills over this time
period. Standard deviation Large-company stock %...
Consider the following 6 months of returns for 2 stocks and a portfolio of those 2stocks:...
Consider the following 6 months of returns for 2 stocks and a
portfolio of those 2stocks:
Note: The portfolio is composed of 50% of
Stock A and 50% of Stock B.
jan
feb
mar
apr
may
jun
stock a
3%
6%
-5%
4%
-1%
5%
stock b
0%
-3%
8%
-1%
4%
-2%
portfolio
1.5%
1.5%
1.5%
1.5%
1.5%
1.5%
What is the expected return and standard deviation of returns
for each of the two stocks?
0.00176; 0.00176
0.04195; 0.04195
0.05985;...
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