Apps Homepage D Georgia Southem Ur Management B.BA. M Connect FMAD Bookshelf Onl

Question

Apps Homepage D Georgia Southem Ur Management B.BA. M Connect FMAD Bookshelf Online:lit Q csCon 10.00 points Consikder the following table for the total annual returns for a given perlod of time Large-company stocks Small-company stocks Long-term corporate bonds Long-term government bonds 117% 16.4 6.9 6.1 5.6 3.8 3.1 20 6% 33.0 9.9 94 5 7 3.1 4.2 ntermediate-term gowernment bonds U.S. Treasury bills Inflation What range of returns would you expect to see 95 percent of the time tor long-term corporate bonds? (A negative answer sho highest to receive credit for your answers. Do not round intermediate calculations and enter your arn Expected range of returns -129?to what about 99 percent of the time? (A negative answer should be indicated by a minus sign. input your answers irom iow -__Js intermediate calculations and enter your answers as a percent rounded to 2 decimal places Expected range of returns %to References eBook & Resources Worksheet Learning Objective 10-03 Explain the historical risks on varous important types O Type here to search ? e 2 4 6 8

Explanation / Answer

Solution:-

a) At 95%:- Expected range of returns is -12.90% to 26.7%

b) At 99%, :- Expected range of returns is -22.8% to 36.6%

Explanation for part( a):-

The mean return of the long term corporate bond given is 6.90%, and the standard deviation is 9.9%. Hence the range of returns we would expect to see 95 percent of the times is mean return plus or minus 2 standard deviation.

Range =Mean return ±2 standard deviation

Substituting the values we get ,

Range = 6.90%±(2×9.9%)

When we take negative value, return = 6.9%-19.8%= -12.9%

When we take positive value , return = 6.9%+19.8%=26.7%      

Explanation for part( b):-

The range of returns we would expect to see 99 percent of the times is mean return plus or minus 3 standard deviation.

Range =Mean return ±3 standard deviation

Substituting the values we get ,

Range = 6.90%±(3×9.9%)

When we take negative value, return = 6.9%-29.7%= -22.8%

When we take positive value , return = 6.9%+29.7%=36.6%

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