What if the last two and a half decades had been “normal”? Download the spreadsheet from containing the data for Figure 10.1.

a. Calculate the arithmetic average return on the S&P 500 from 1926 to 1989.

b. Assuming that the S&P 500 had simply continued to earn the average return from (a), calculate the amount that $100 invested at the end of 1925 would have grown to by the end of 2014.

c. Do the same for small stocks.

Figure 10.1

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FIGURE 10.1 $10,000,000 Value of Investment $1,000,000 $100,000 $10,000 $1,000 $100 $10 1925 Value of $100 Invested in 1925 in Stocks, Bonds, or Bills - Small Stocks S&P 500 - World Portfolio Corporate Bonds - Treasury Bills - CPI 2000-02: -26%, -45%, 1987: -34%, -30% 1968-74: -63%, -37% 2007-09: -67%, -51% 1937-38: -72%, -50% 1928-32: Small stocks -92%, S&P 500 - 84% 1935 1945 1955 1965 1975 Year 1985 you 1979-81: Inflation & TBill yields peak at 15% 1995 2005 $4,637,913 $480,560 $187,182 $23,147 $2,043 $1,312 2015