DROP DOWN OPTIONS FOR PART A. GROWTH INDEX AND VALUE INDEX FOR BOTH

DROP DOWN FOR PART B. LESS THAN, MORE THAN OR SAME AS

DROP DOWN FOR PART D. HAVE BEEN, HAVE NOT BEEN. 2ND PART IS EARNED, LOST. 3RD PART IS EARNING AND LOSING

Problem 11-09 Each month for the past several years, you have collected the monthly returns to an index of large-cap value stocks and an index of large-cap growth stocks. For the last two years, for both of the indexes you have converted these monthly returns into a series of rolling average annualized returns by taking an average of the previous 12 monthly returns and multiplying that average by 12. These rolling average annualized returns are shown below for each index over the past 24 months. Value Index Annualized Growth Index Annualized Return (%) Return (%) Month 9.66% 16.73 26.21 16.32 16.84 17.29 18.90 18.57 9.64% 16.54 27.42 14.53 16.79 17.09 12.93 10.04 10.26 15.89 23.51 18.77 23.89 19.57 22.18 28.75 22.12 27.30 21.48 23.68 16.17 25.57 26.14 26.64 18.77 26.10 25.77 28.04 20.53 25.44 21.99 18.16 24.09 20.26 18.26 18.72 20.59 17.69 22.96 25.97 a. For both the value and growth indexes, calculate the arithmetic mean of the 24 monthly average annualized returns. Which index appears to have outperformed the other over this period? Explain. Do not round intermediate calculations. Round your answers to two decimal places. The Value Index: The Growth Index: The -Select appears to have outperformed the -Select- over the 24-month period by %. b. For each month in this sample period, compute the difference in annualized returns between the value index and the growth index (Rvalue - Rgrowth). Calculate the average of this return differential series and compare it to your answers from part (a). Do not round intermediate calculations. Round your answers to two decimal places. Negative values, if any, should be indicated by a minus sign. If your answer is zero, enter 0. Month Rvalue - Rgrowth Average Higher Growth Stock Retums Rotation of value and Growth Returns TAnnualsed Retum Difference Higher Valve Stock Rom 101112131415 1819 20 21 22 23 24 Higher Growth Stock Returns Annual Rotation of value and Growth Returns Return Ofference Higher value Stock Returns Higher Growth Stock Retums Annual Rotation of value and Growth Returns Retum Diferente Higher Value Stock Return 1919 20 21 22 d. The average return differential from part (b) is one way of calculating the risk premium associated with a value investment factor. Interpret this risk premium statistic and explain how it can be seen as the average annualized return earned by a hedge fund following a strategy to go long in value stocks and short in growth stocks. Do not round intermediate calculations. Round your answers to two decimal places. Negative values, if any, should be indicated by a minus sign. quite profitable. The hedge fund would have -Select the average annualized return in the Value Index of %, thus -Select- it the A hedge fund that was following a strategy to go long in value stocks and short in growth stocks would -Select- additional risk premium of %. e. Compute the percentage of the months in the two-year sample period when the rolling average annualized return to the growth index was actually larger than that for the value index. Do not round intermediate calculations. Round your answers to two decimal places. What, if anything, does this tell you about the reliability of the value risk premium over time? This means that the value risk premium of % was reliable for over % of the time in the period studied. Problem 11-09 Each month for the past several years, you have collected the monthly returns to an index of large-cap value stocks and an index of large-cap growth stocks. For the last two years, for both of the indexes you have converted these monthly returns into a series of rolling average annualized returns by taking an average of the previous 12 monthly returns and multiplying that average by 12. These rolling average annualized returns are shown below for each index over the past 24 months. Value Index Annualized Growth Index Annualized Return (%) Return (%) Month 9.66% 16.73 26.21 16.32 16.84 17.29 18.90 18.57 9.64% 16.54 27.42 14.53 16.79 17.09 12.93 10.04 10.26 15.89 23.51 18.77 23.89 19.57 22.18 28.75 22.12 27.30 21.48 23.68 16.17 25.57 26.14 26.64 18.77 26.10 25.77 28.04 20.53 25.44 21.99 18.16 24.09 20.26 18.26 18.72 20.59 17.69 22.96 25.97 a. For both the value and growth indexes, calculate the arithmetic mean of the 24 monthly average annualized returns. Which index appears to have outperformed the other over this period? Explain. Do not round intermediate calculations. Round your answers to two decimal places. The Value Index: The Growth Index: The -Select appears to have outperformed the -Select- over the 24-month period by %. b. For each month in this sample period, compute the difference in annualized returns between the value index and the growth index (Rvalue - Rgrowth). Calculate the average of this return differential series and compare it to your answers from part (a). Do not round intermediate calculations. Round your answers to two decimal places. Negative values, if any, should be indicated by a minus sign. If your answer is zero, enter 0. Month Rvalue - Rgrowth Average Higher Growth Stock Retums Rotation of value and Growth Returns TAnnualsed Retum Difference Higher Valve Stock Rom 101112131415 1819 20 21 22 23 24 Higher Growth Stock Returns Annual Rotation of value and Growth Returns Return Ofference Higher value Stock Returns Higher Growth Stock Retums Annual Rotation of value and Growth Returns Retum Diferente Higher Value Stock Return 1919 20 21 22 d. The average return differential from part (b) is one way of calculating the risk premium associated with a value investment factor. Interpret this risk premium statistic and explain how it can be seen as the average annualized return earned by a hedge fund following a strategy to go long in value stocks and short in growth stocks. Do not round intermediate calculations. Round your answers to two decimal places. Negative values, if any, should be indicated by a minus sign. quite profitable. The hedge fund would have -Select the average annualized return in the Value Index of %, thus -Select- it the A hedge fund that was following a strategy to go long in value stocks and short in growth stocks would -Select- additional risk premium of %. e. Compute the percentage of the months in the two-year sample period when the rolling average annualized return to the growth index was actually larger than that for the value index. Do not round intermediate calculations. Round your answers to two decimal places. What, if anything, does this tell you about the reliability of the value risk premium over time? This means that the value risk premium of % was reliable for over % of the time in the period studied