Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 12.2, Problem 12.2ECQ
What was the longest “winning streak” (years without a negative return) for large-company stocks? For long-term government bonds?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Do capital markets include trade equity and debt instruments with maturities of less than one year?
Which one is correct answer please confirm?
Studies analyzing the historical returns earned by common stock investors have found that the returns from average risk common stock investments over very long time periods have averaged approximately ____ percentage points ____ than holding period returns on corporate debt issues.
a.
5.7; higher
b.
5.7; lower
c.
7.5; higher
d.
7.5; lower
Assume that over the last several decades, the annual returns on large-company common
stocks averaged 12.1 percent, small-company stocks averaged 16.5 percent, long-term
government bonds averaged 6 percent, and U.S. T-bills averaged 3.4 percent. What was the
average excess return or risk premium earned by long-term government bonds, and small-
company stocks respectively?
O2.6%: 13.1%
2.6%; 4.4 %
1.8%; 13.3%
1.9%; 5.1%
Chapter 12 Solutions
Fundamentals of Corporate Finance
Ch. 12.1 - Prob. 12.1ACQCh. 12.1 - Why are unrealized capital gains or losses...Ch. 12.1 - What is the difference between a dollar return and...Ch. 12.2 - Prob. 12.2ACQCh. 12.2 - Why doesnt everyone just buy small stocks as...Ch. 12.2 - What was the smallest return observed over the 88...Ch. 12.2 - About how many times did large-company stocks...Ch. 12.2 - What was the longest winning streak (years without...Ch. 12.2 - How often did the T-bill portfolio have a negative...Ch. 12.3 - Prob. 12.3ACQ
Ch. 12.3 - What was the real (as opposed to nominal) risk...Ch. 12.3 - Prob. 12.3CCQCh. 12.3 - What is the first lesson from capital market...Ch. 12.4 - In words, how do we calculate a variance? A...Ch. 12.4 - With a normal distribution, what is the...Ch. 12.4 - Prob. 12.4CCQCh. 12.4 - What is the second lesson from capital market...Ch. 12.5 - Prob. 12.5ACQCh. 12.5 - Prob. 12.5BCQCh. 12.6 - What is an efficient market?Ch. 12.6 - Prob. 12.6BCQCh. 12 - Chase Bank pays an annual dividend of 1.05 per...Ch. 12 - The risk premium is computed as the excess return...Ch. 12 - Prob. 12.4CTFCh. 12 - Prob. 12.5CTFCh. 12 - Prob. 12.6CTFCh. 12 - Investment Selection [LO4] Given that Fannie Mae...Ch. 12 - Prob. 2CRCTCh. 12 - Risk and Return [LO2, 3] We have seen that over...Ch. 12 - Market Efficiency Implications [LO4] Explain why a...Ch. 12 - Efficient Markets Hypothesis [LO4] A stock market...Ch. 12 - Semistrong Efficiency [LO4] If a market is...Ch. 12 - Efficient Markets Hypothesis [LO4] What are the...Ch. 12 - Stocks versus Gambling [LO4] Critically evaluate...Ch. 12 - Efficient Markets Hypothesis [LO4] Several...Ch. 12 - Efficient Markets Hypothesis [LO4] For each of the...Ch. 12 - Calculating Returns [LO1] Suppose a stock had an...Ch. 12 - Calculating Yields [LO1] In Problem 1, what was...Ch. 12 - Prob. 3QPCh. 12 - Prob. 4QPCh. 12 - Nominal versus Real Returns [LO2] What was the...Ch. 12 - Bond Returns [LO2] What is the historical real...Ch. 12 - Prob. 7QPCh. 12 - Risk Premiums [LO2, 3] Refer to Table 12.1 in the...Ch. 12 - Calculating Returns and Variability [LO1] Youve...Ch. 12 - Calculating Real Returns and Risk Premiums [LO1]...Ch. 12 - Calculating Real Rates [LO1] Given the information...Ch. 12 - Prob. 12QPCh. 12 - Prob. 13QPCh. 12 - Calculating Returns and Variability [LO1] You find...Ch. 12 - Arithmetic and Geometric Returns [LO1] A stock has...Ch. 12 - Arithmetic and Geometric Returns [LO1] A stock has...Ch. 12 - Using Return Distributions [LO3] Suppose the...Ch. 12 - Prob. 18QPCh. 12 - Distributions [LO3] In Problem 18, what is the...Ch. 12 - Blumes Formula [LO1] Over a 40-year period an...Ch. 12 - Prob. 21QPCh. 12 - Calculating Returns [LO2, 3] Refer to Table 12.1...Ch. 12 - Using Probability Distributions [LO3] Suppose the...Ch. 12 - Using Probability Distributions [LO3] Suppose the...Ch. 12 - Prob. 1MCh. 12 - Prob. 2MCh. 12 - Prob. 3MCh. 12 - Prob. 4MCh. 12 - A measure of risk-adjusted performance that is...Ch. 12 - Prob. 6M
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- How can the behavior of market interest rates and bond returns over the past 50 years be described? Do swings in market interest rates have any bearing on bond returns?arrow_forwardConsider the following information for a period of years: Arithmetic Mean Long-term government bonds 7.0 % Long-term corporate bonds 7.1 Inflation 4.0 What is the real return on long-term government bonds? ____%arrow_forwardIn which Market debt and stocks are traded and maturity period is more than a year? A. Money Market B. Share Market C. Short Term Market D. Capital Marketarrow_forward
- Over the period of 1926-2014, which one of the following investment classes had the highest volatility of returns? Multiple Choice Large-company stocks U.S. Treasury bills Small-company stocks Long-term corporate bonds Long-term government bondsarrow_forwardConsider the following information for a period of years: Long-term government bonds Long-term corporate bonds Inflation Arithmetic Mean a. Long-term government bonds. b. Long-term corporate bonds 7.4% 7.5 4.2 a. What is the real return on long-term government bonds? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the real return on long-term corporate bonds? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. %arrow_forwardThe distribution of returns for which one of the following for the period of 1926-2006 produces the widest bell curve (or distribution)? O inflation. O long-term government bonds O large-company stocks O U.S. Treasury bills. small-company stocksarrow_forward
- Among the following types of investments, small-company stocks, large-company stocks, long-term corporate bonds, long-term government bonds, and U.S. Treasury bills, small-company stocks had a risk premium of 13.2 percent for the past 90 years. What does the term "risk premium" mean? Is the risk premium on small-company stocks considered to be relatively high or relatively low when compared to other investment classes? Explain why.arrow_forward) Which of the following provides the best estimate of the risk-free interest rate for the CAPM approach to estimating the cost of retained earnings? 30-day Treasury bill 10- or 30-year Treasury bond 30-year IBM bond 90-day Treasury bill none of the abovearrow_forwarda. What is the price (expressed as a percentage of the face value) of a 1-year, zero-coupon corporate bond with a AAA rating and a face value of $1,000? b. What is the credit spread on AAA-rated corporate bonds? c. What is the credit spread on B-rated corporate bonds? d. How does the credit spread change with the bond rating? Why? Note: Assume annual compounding.arrow_forward
- Multiple Choice Question Which of these best summarizes market performance for the period 1950-2012? A)Long-term Treasury bonds outperformed T-bills during every decade. B) T-bills produced more stable returns in the short-run and outperformed long-term Treasury bonds for the period. C) Long-term Treasury bond returns were less volatile in the short-run but produced the highest long-run average rate of return. D) The returns on the S&P 500 were more volatile than long-term Treasury Only typed Answer give fast and don't use chat gptarrow_forwardIn general, which of the following statements is true about a corporate bond's coupon rate? It changes every year. It decreases as a bond nears maturity. It is fixed until the bond matures. It is identical to the discounting rate. O It changes in sync with market interest rates.arrow_forwardThe rate of return on which one of the following has a risk premium of 0%? Multiple Choice Long-term government bonds Long-term corporate bonds Intermediate-term government bonds U.S. Treasury bills Large-company stocksarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Investing For Beginners (Stock Market); Author: Daniel Pronk;https://www.youtube.com/watch?v=6Jkdpgc407M;License: Standard Youtube License