Question

Which of the following statements is true about equity returns, as represented by the S&P 500 from 1928 - 2016?

a) The historical 1-year returns for the S&P 500 have ranged from approximately 25% to -15%.
b) The lowest 20-year average return for this time period was -3.0%.
c) Both a and b are true.
d) Both a and b are false.

Answer 1

The statements about the historical S&P 500 returns are false because the 1-year returns have been both lower and higher than the range given, and the lowest 20-year average return was not -3.0%.

Step-by-step explanation:

The historical S&P 500 1-year returns from 1928 - 2016 have shown significant variation, but not within the narrow range of approximately 25% to -15% as the returns have been both above and below those figures. For instance, in 2008, the S&P 500 declined by about 37%, while in 2009, it increased by approximately 26%. Looking at the lowest 20-year average return for this period, it is not as low as -3.0%, indicating that over any 20-year period, the S&P 500 did not average an annual loss. Taking these points into consideration, the correct statement is that both claims a and b are false.