1) Over the past 4 years, large-company stocks and U.S. Treasury bills have produced the returns stated below. During this period, inflation averaged 2.8 percent. Given this information, the average real rate of return on large-company stocks was ___ percent as compared to _____ percent for Treasury bills.

Year 1 2 3 4

Percent return on large company stocks 15 7 4 18

Percent return on US Treasury bills 6 3 2 4

Ave Nominal Large Co Stocks = 11%, Ave Nominal T Bills = 3.75%

Ave Real Large Co Stocks = 8.2%, Ave Real T-Bills = 0.95%

2) Assume that long-term corporate bonds had an average return of 6.3 percent and a standard deviation of 8.3 percent for a 30-year period. What range of returns would you expect to see on these bonds 68 percent of the time? Range: -2% to 14.6%

3) Your portfolio has provided you with returns of 8.6 percent, 14.2 percent, -3.7 percent, and 11.4 percent over the past four years, respectively. What is the geometric average return for this period? Geometric Ave = 7.3994%

4) A stock has yielded returns of 6 percent, 11 percent, 14 percent, and -2 percent over the past 4 years, respectively. What is the standard deviation of these returns? Stdev = 6.994%

5) Last year, Thomas invested $38,000 in Oil Town stock, $11,000 in long-term government bonds, and $8,000 in U.S. Treasury bills. Over the course of the year, he earned returns of 12.1 percent, 6.3 percent, and 3.9 percent, respectively. What was the nominal risk premium on Oil Town's stock for the year? Risk Premium = 8.2%