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The following information is available concerning the historical risk and return relationships in the U.S. capital markets: U.S. CAPITAL MARKETS TOTAL ANNUAL RETURNS, 1990-2015 Arithmetic

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The following information is available concerning the historical risk and return relationships in the U.S. capital markets: U.S. CAPITAL MARKETS TOTAL ANNUAL RETURNS, 1990-2015 Arithmetic Geometric Standard Deviation of Investment Category Mean Mean Return Common stocks 10.02% 8.45% 16.8% Treasury bills 4.52 4.48 3.3 Long-term government 4.35 4.13 6.8 bonds Long-term corporate 6.35 6.20 9.2 bonds Real estate 9.53 3.9 Based on arithmetic mean. a. Explain why the geometric and arithmetic mean returns are not equal and whether one or the other may be more useful for investment decision making. The arithmetic average assumes Select while the geometric average assumes Select b. For the time period indicated, rank these investments on a relative basis using the coefficient of variation from most to least desirable. Do not round intermediate calculations. Round your answers to two decimal places. Investment Category Coefficient of variation, % Rank 1 -Select V v 2 Select Select 3 4 Select Seled V c. Assume the arithmetic mean returns in these series are normally distributed. Calculate the range of returres that an investor would have expected to achieve 95 percent of the time from holding long-term government bonds. Do not round intermediate calculations. Round your answers to two decimal places. Use a minus sign to enter negative values, if any. Arithmetic from % to THE # BRI * 11 DE ## #l # FRE while basis u Investment Catege umes -Select- -Select- ed, rar compounding or interest-on-interest the presence of simple interest Round your answers to two decial places. Rank al and whether one or the other may be more useful for investment decision making. , while the geometric average assumes -Select- -Select- basis using the coefficient of variation fr compounding or interest-on-interest round the presence of simple interest 25. Category Coefficient of variation, % K Rank 1 2345 Investment Category -Select- -Select- Common Stocks Long-term corporate bonds Long-term government bonds Real estate Treasury bills these series are normally distrib Coefficient of variation, %

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