Which type of asset has the largest annual average \"return\"? Which type of ass
ID: 2786337 • Letter: W
Question
Which type of asset has the largest annual average "return"? Which type of asset has the largest "risk" in term of standard deviation? Which type of asset has the smallest annual average "return"? Which type of asset has the smallest "risk" in term of standard deviation? Do such findings support the hypothesis "the greater risk is, the greater return should be"? (Please note that "inflation" in the list is not included as a type of asset.)
PARTS FIGURE 1210 O Historical Retums Standard Deviations and Frequency Distributions 1926-2007 AVERAGE RETURN STANDARo DEVIATION OISTRIBUTION 12.3% 20 0% lal 17.1 326 -47.7%-27.7 6.2 8.4 5.8 9.2 will end up within bability of being more tha s. that we These ranges and To see why this is useful on the large-company stock govenment bonds 5.5 5.7 that the frequency dist return in a given year is i one standard deviation,2 In other words, there is a This literally tells you t outside this range in on about stock market vol that we would end up minus 2 × 20%). They U.S. Treasury bills 3.8 3.1 3.1 The 1933 small-company stociks total rturn was 142.9 percent Cricago: Momingstan), Al rights reserved onn Modified from Stocks Bn n fn okualy tes work by Roger G. lobotson and Rex A Sinqueted THE SECOND LESS Our observations coExplanation / Answer
Which type of asset has the largest annual average "return"?
Small Company stocks have the largest annual average return as the return value is 17.1.
Which type of asset has the largest "risk" in term of standard deviation?
The largest risk is in Small Company stocks as it has the largest value of standard deviation i.e. 32.6
Which type of asset has the smallest annual average "return"?
U.S. Treasury Bond has the smallest annual average return as the return value is 3.8. This is the least in the given table as inflation is not a type of asset.
Which type of asset has the smallest "risk" in term of standard deviation?
U.S. Treasury Bond has the smallest risk as it's standard deviation is the least i.e. 3.1
Do such findings support the hypothesis "the greater risk is, the greater return should be"?
Yes, such findings support the hypothesis that the greater the risk is, the greater return should be. In the given table and from the above answers, it is clear that Small Company stocks have the maximum risk (as the standard deviation is maximum) and these also give the maximum return. Similarly, U.S. Treasury bill have the minimum risk (as the standard deviation is minimum) and it also gives the minimum return. Thus, when an investor puts his/her money in a financial instrument, then the investor expects that as he/she is incurring a greater risk by investing in a particular asset so he/she should be given a greater amount of return.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.