Investments

Rate of Return from Dividends (%) Rate of Return from Capital Gains (%) Average Annual Total Return (%) 1930s 5.7% 1.4% 4.3% 1940s 5.8% 3.8% 9.6% 1950s 4.7% 16.2% 20.9% 1960s 3.2% 5.4% 8.6% 1970s 4.2% 3.3% 7.5% 1980s 4.1% 13.8% 17.9% 1990s 2.4% 16.5% 18.9% 20002009 1.8% 0.7% 1.1% 19002014 3.9% 7.5% 11.4%

Look at the record of stock returns in Table 6.1 in Chapter 6 of your textbook.

a. How would you compare the average annual returns for the various decades? b. Considering the average annual returns that have been generated over holding periods of 10 years of more, what rate return do you feel is typical for the stock market in general? Is it unreasonable to expect this kind of return, on average, in the future? Explain.

Please cite all sources