If the nominal interest rate is 14%, and inflation is 4%, what is the real interest rate?

 

22.A bond investment yielded 8%. If inflation was 3%, what real return did the bond offer?

 

23.The following data is provided for the S&P 500 index:

Year        Total Return        Year        Total Return

1988        16.81%        1998        28.58%

1989        31.49%        1999        21.04%

1990        -3.17%        2000        -9.11%

1991        30.55%        2001        -11.88%

1992        7.67%        2002        -22.10%

1993        9.99%        2003        28.70%

1994        1%        2004        10.87%

1995        37.43%        2005        4.91%

1996        23.07%        2006        15.80%

1997        33.36%        2007        5.49%

Refer to the information above. Calculate the 20-year GEOMETRIC average annual rate of return on the S&P 500 Index

 

24.The following data is provided for the S&P 500 Index:

 

Year        Total Return        Year        Total Return

1988        16.81%        1998        28.58%

1989        31.49%        1999        21.04%

1990        -3.17%        2000        -9.11%

1991        30.55%        2001        -11.88%

1992        7.67%        2002        -22.10%

1993        9.99%        2003        28.70%

1994        1.31%        2004        10.87%

1995        37.43%        2005        4.91%

1996        23.07%        2006        15.80%

1997        33.36%        2007        5.49%

Refer to the information above. Calculate the 20-year ARITHMETIC average annual rate of return on the S&P 500 Index.

 

25.

The following returns have been estimated for Security T and Security S:

 

Scenario  Security T     Security S

1                 20%                  10%

2                  13%                 -6%

3                  15%                 20%

 

Refer to the information above. What is the expected return of the portfolio?

 

26.

Stock        Expected Return        Standard Deviation        Beta

J        14%        23%        +1.1

R        8%        18%        +0.7

H        2%        20%        -.3

S        20%        35%        +2.5

 

Assume you hold the market portfolio. Which of the following stocks would provide you with the greatest diversification benefit?

 

27.The expected return on the market portfolio is 12%, and the relevant risk-free rate is 4.2%. What is the equity premium?