Use the following table of returns from 1926 through 2011: Requirement 1: Determ

Question

Use the following table of returns from 1926 through 2011: Requirement 1: Determine the return on a portfolio that was equally invested in large-company stocks and long-term corporate bonds. (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Portfolio Return % Requirement 2: What was the return on a portfolio that was equally invested in small stocks and Treasury bills? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Portfolio Return %

Explanation / Answer

1. Portfolio with equal investment in large company stocks and long term bonds (assuming half amount in large company stocks and half in long term bonds)

= 0.5*11.8%+0.5*6.4%

(formula used is = weightage of the source of capital in total capital*its average return)

= 5.9%+3.2% = 9.1%

2. Portfolio with equal investment in small stocks and T-Bills (assuming half amount in small stocks and half in T-bills)

= 0.5*16.5%+0.5*3.6%

= 8.25%+1.8% = 10.05%

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