Here is an analysis of the one-year holding period returns produced by three different classes of assets over the 100-year period (1927-2018):

Arithmetic Mean of Returns

Standard Deviation of Returns

Common Stocks

11.72% 5.83% 3.38%

20.05% 11.59% 3.12%

Long-Term Treasury Bonds

Treasury Bills

1. Explain how these historical measurements confirm our basic understanding of risk and return.

2. The above table presents each asset class in descending order of the mean return and standard deviation. The table does not include measurements for other classes because the authors limited their analysis to the three classes presented.

Corporate bonds are a major class of investment assets that the authors excluded from their analysis. If corporate bonds had been included in the analysis, where would they have likely appeared in the above table? Explain