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The following table contains the historic returns from a portfolio consisting of large stocks and a portfolio consisting of long-term Treasury bonds over the last

The following table contains the historic returns from a portfolio consisting of large stocks and a portfolio consisting of long-term Treasury bonds over the last 20 years. T-bills returns represent risk-free returns. Analyze the risk-return trade-off that would have characterized these portfolios. The following dataset is also available in Excel format in Module 3 Resources on Canvas. Returns in the dataset are in percents. For example, 31.33 means 31.33% per year.

Year Large Stock Long-Term T-Bonds T-Bills
1997 31.33 11.312 5.26
1998 24.27 13.094 4.86
1999 24.89 -8.4734 4.68
2000 -10.82 14.4891 5.89
2001 -11 4.0302 3.78
2002 -21.28 14.6641 1.63
2003 31.76 1.2778 1.02
2004 11.89 5.1862 1.2
2005 6.17 3.103 2.96
2006 15.37 2.2713 4.79
2007 5.5 9.6431 4.67
2008 -36.92 17.6664 1.47
2009 29.15 -5.8278 0.1
2010 17.8 7.4457 0.12
2011 1.01 16.6015 0.04
2012 16.07 3.5862 0.06
2013 35.18 -6.9025 0.03
2014 11.37 10.1512 0.02
2015 -0.19 1.0665 0.01
2016 13.41 0.7039 0.19

a. Estimate the annual risk premium of large stocks and T-bonds, respectively. (Round your answers to 2 decimal places.)

b. Estimate the annual volatility of large stocks and long-term T-bonds, respectively. (Round your answers to 2 decimal places.)

c. Estimate the Sharpe ratio of large stocks and long-term T-bonds, respectively. (Round your answers to 2 decimal places.)

d. Now assume that you have always invested half of your wealth in the stock and the other half in the T-bonds. Estimate the Sharpe ratio of your portfolio. (Round your answers to 2 decimal places.)

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