You have just stumbled on a new dataset that enables you to compute historical rates of return on U.S. stocks all the way back to 1880. What are the advantages and disadvantages in using these data to help estimate the expected rate of return on U.S. stocks over the coming year?

You have $5,000 to invest for the next year and are considering three alternatives: a. A money market mutual fund with an average maturity of 30 days offering a current yield of 6% per year. b. A 1-year saving deposit at a bank offering an interest rate of 7.5%, c. A 20-year U.S. Treasury bond offering a yield to maturity of 9% per year.

What role does your forecast of future interest rates play in your decisions?