Problem 5-14

Average Annual Rates Standard Deviation

T-Bills Inflation Real T-Bill T-Bills Inflation Real T-Bill

All months 3.46 2.40 0.56 3.12 4.07 3.81

First half 1.04 1.68 0.29 1.29 5.95 6.27

Recent half 4.45 3.53 0.90 3.11 2.89 2.13

(1926-2016) Market Index Big/ Growth Big/ Value Small/ Growth Small/ Value

Mean excess return (annualized) 0.83 7.98 11.67 8.79 15.56

Standard deviation (annualized) 18.64 18.50 24.62 26.21 28.36

Using the data provided above, what would be your predictions for the following? (Round your answers to 2 decimal places.)

a. The T-Bil Rate?

b. The expected rate of return on the Big/Value portfolie?

c. The risk premium on the stock market?