Stock Market History
a. What was the average rate of return on large U.S. common stocks from 1900 to 2001?
b. What was the average risk premium on large stocks?
C. What was the standard deviation of returns on the market portfolio?
a. Which index? Inflation adjusted or not?
b. Which large stocks?
c. Which portfolio?
You need to be more specific in your question, and should make an attempt to find this some of the data yourself.
I only came up with the following. I thought the questions was kinda vague too.
A. T-bills = 4.1%
TBonds = 5.1 %
Common stocks = 11.8 %
B. I was not sure if a formula was the answer.. if so
interest rate on T-bills + market risk premium
C.??
As you said, I still have some work to do on this one.
A. The stock and T-bill rates you listed look about right for that period, but I thought T-Bonds (10-year) averaged more like 7%.
(See http://research.stlouisfed.org/fred2/data/GS10.txt for a list of rates)
B. The "risk premium" is the difference between the stock market appreciation rate and the Treasury Bond rate (assume ten-year bonds). Using your figures, it would be 6.7%.
1 answer