Question

Series

Average return
Large stocks 11.82 %
Small stocks 16.52
Long-term corporate bonds 6.26
Long-term government bonds 6.1
U.S. Treasury bills 3.86
Inflation 3.1

Requirement 1:
Determine the return on a portfolio that was equally invested in large-company stocks and long-term corporate bonds.


Requirement 2:
What was the return on a portfolio that was equally invested in small stocks and Treasury bills?

Answer 1

For an equally weighted portfolio of large-company stocks and long-term corporate bonds, the average return is 9.04%. For an equally weighted portfolio of small stocks and U.S. Treasury bills, the average return is 10.19%.

Step-by-step explanation:

The student is asking about calculating the average return on investment portfolios. To find the return when the investments are equally weighted, we simply average the returns of the individual assets.

Requirement 1:

To determine the portfolio average return that is equally divided between large-company stocks and long-term corporate bonds, we take the average of the two returns:

((11.82% + 6.26%) / 2) = 9.04%

Requirement 2:

Similarly, for a portfolio that is equally invested in small stocks and Treasury bills, the average return is:

((16.52% + 3.86%) / 2) = 10.19%