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Chapter 9: Capital Market Theory: An Overview

This document summarizes key concepts from Chapter 9 of a capital market theory text. It provides statistical data on returns, variances, standard deviations and expected returns for different asset classes including stocks, bonds and Treasury bills. Specific figures given include expected market returns of 10.55% and Treasury bill returns of 3.5%, as well as average returns and risks for small vs large stocks, corporate vs government bonds, and more.

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48 views

Chapter 9: Capital Market Theory: An Overview

This document summarizes key concepts from Chapter 9 of a capital market theory text. It provides statistical data on returns, variances, standard deviations and expected returns for different asset classes including stocks, bonds and Treasury bills. Specific figures given include expected market returns of 10.55% and Treasury bill returns of 3.5%, as well as average returns and risks for small vs large stocks, corporate vs government bonds, and more.

Uploaded by

ratikdayal
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 9: Capital Market Theory: An Overview

9.1 a. Capital Gain = $500 b. Total Dollar Gain = $1,500 c. Rt+1 =0.0811 a. Capital Gain = $450 b. Total Dollar Gain = $1,050 c. Rt+1 = 0.1010 e. Dividend Yield = 0.0577 The percentage return is 20.48%. Rt+2 = 0.0529 a. r = 0.0883 b. r = 0.03 c. r = 0.0262 d. r = 0.00679 E(R) = 0.104 General Materials: (0.99) P0 Standard Fixtures: (0.99) P0 The five-year holding-period return is 98.42 percent. E(R) = 0.044 a. The expected return on the market is 10.55 percent. The expected return on Treasury bills is 3.5 percent. b. The expected risk premium is 7.05 percent. a. The average return is 15.9 percent. b. The standard deviation of the portfolio is 0.1708. b. The average risk premium is 8.49 percent. a. E(R) = 0.088 b. The standard deviation is 0.03311. a. The expected return on the market is 15.3 percent. b. The expected return on Tribli stock is 6.28 percent. a. The expected return on Belinkie Enterprises stock is 5.75 percent. The expected return on Overlake Company stock is 9 percent. b. The variance of Belinkie Enterprises stock is 0.000421. The variance of Overlake Company stock is 0.00115. a. The average return on small-company stocks is 15.42 percent. The average return on large-company stocks is 14.88 percent. b. The standard deviation of the small-company returns is 0.33249. The standard deviation of the large-company returns is 0.33400. The average return on common stocks is 18.33 percent. The variance of the common stock returns is 0.018372. The average return on small stocks is 20.90 percent. The variance of the small stock returns is 0.029734. The average return on long-term corporate bonds is 16.01 percent. The variance of the long-term corporate bond returns is 0.029522. The average return on long-term government bonds is 15.68 percent. The variance of the long-term government bond returns is 0.02868. The average return on the Treasury bills is 9.86 percent. The variance of the Treasury bill returns is 0.00075. a. The average return on small-company stocks is 8.95 percent. The average return on U.S. Treasury bills is 6.63 percent.

9.2

9.3 9.4 9.5

9.6 9.7 9.8 9.9 9.10

9.11 9.12 9.13 9.14 9.15

9.16

9.17

9.18

9.19

b. The standard deviation of small-company stocks is .2340. The standard deviation of the Treasury bill returns is 0.0119. The range in which 95 percent of the returns will fall is between 0.5 percent and 34.5 percent.

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