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Consider the following table for the total annual returns for a given period of time. Series Average return Standard Deviation Large-company stocks 11.7 20.6 Small-company
Consider the following table for the total annual returns for a given period of time. |
Series | Average return | Standard Deviation | ||
Large-company stocks | 11.7 | 20.6 | ||
Small-company stocks | 16.4 | 33.0 | ||
Long-term corporate bonds | 5.7 | 8.6 | ||
Long-term government bonds | 6.1 | 9.4 | ||
Intermediate-term government bonds | 5.6 | 5.7 | ||
U.S. Treasury bills | 3.8 | 3.1 | ||
Inflation | 3.1 | 4.2 |
Requirement 1: |
What range of returns would you expect to see 95 percent of the time for long-term corporate bonds? |
Expected range of returns | % to % |
Requirement 2: |
What about 99 percent of the time? |
Expected range of returns | % to % |
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1. Consider the following table for the total annual returns for a given period of time. Series Average return Large-company stocks 11.7 % Small-company stocks 16.4 Long-term corporate bonds 6.8 Long-term government 6.1 bonds Intermediate-term 5.6 government bonds U.S. Treasury bills 3.8 Inflation 3.1 Standard Deviation 20.6 33.0 9.8 9.4 5.7 3.1 4.2 Requirement 1: What range of returns would you expect to see 68 percent of the time for long-term corporate bonds? (Do not include the percent signs (%). Negative amount should be indicated by a minus sign.Input your answers from lowest to highest to receive credit for your answers. Round your answers to 2 decimal places (e.g., 32.16).) Expected range of returns -3.00 2% % to 16.60 2% % Requirement 2: What about 95 percent of the time? (Do not include the percent signs (%). Negative amount should be indicated by a minus sign. Input your answers from lowest to highest to receive credit for your answers. Round your answers to 2 decimal places (e.g., 32.16).) Expected range of returns -12.80 2% % to 26.40 2% % Explanation: Looking at the long-term corporate bond return history, we see that the mean return was 6.8 percent, with a standard deviation of 9.8 percent. The range of returns you would expect to see 68 percent of the time is the mean plus or minus 1 standard deviation, or: R 1 = 6.8% 1(9.8%) = -3.00% to 16.60% The range of returns you would expect to see 95 percent of the time is the mean plus or minus 2 standard deviations, or: R 2 = 6.8% 2(9.8%) = -12.80% to 26.40%Step by Step Solution
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