Question 5

Use the following information to answer Questions 5 - 10.

The annual returns of the Dow Jones Industrial Average (DJIA) from 2017 to 2023:

Year	DJIA Annual Return
2016	13.42%
2017	25.08%
2018	-5.63%
2019	22.34%
2020	7.25%
2021	18.73%
2022	-8.78%

What is the arithmetic average return on the DJIA over this seven-year period?

a. 12.41%

b. 11.62%

c. 10.34%

d. 13.53%

Question 6

What is the standard deviation of returns over this seven-year period?

a. 12.91%

b. 14.02%

c. 11.35%

d. 13.36%

Question 7

Suppose the T-bill rate is 2.8% what is the risk premium of DJIA?

a. 9.79%

b. 13.28%

c. 7.54%

d. 11.36%

Question 8

What range of returns would you expect to see 95% of the time?

a. (-18.84%, 32.04%)

b. (-16.38%, 37.07%)

c. (-9.18%, 36.24%)

d. (-15.15%, 35.22%)

Question 9

What is the geometric average return for the seven-year period?

a. 9.62%

b. 13.03%

c. 11.95%

d. 15.54%

Question 10

According to the Blume's formula, what is the 3-year average return forecast?

a. 14.04%

b. 11.56%

c. 10.10%

d. 13.33%