Question

CHAPTER COMMON STOCKS TABLE 6.1 HISTORICAL RETURNS ON THE STANDARD AND POOR S 500, 1950-2010 Rate of Return from Dividends 1%) Rate of Return from Capital Gain Total Remas 1980s 1970s 1980s 1900 2000s 1950-2010 Note: The total return is gher than the sum of the dividend ande assume dividends are invested when received Source: www.simplestockveting.com/ hi m ala r e volatility (even in good markets, but that's the price you pay for all the upside pe tial. For example, from 1982 through early 2000, in one of the longest bull marke history, the DJIA grew (over 18 years) at an average annual rate of nearly 17%. Yet,

Answer 1

a]

The rate of return from dividends is very similar in the 70's and 80's. However, the rate of return from capital gains was much higher in the 80's, resulting in a much higher total return during the 80's as compared to the 70's

b]

The market returns during the 90's were very high on capital gains, in fact the highest during any of the decades. However, the rate of return from dividends was relatively low.

Compared to the 2000 - 2010 period, the 90's were much higher on both dividend returns and capital gains.

c]

The average annual return during the 1950-2010 period was 11%.

The rate of return typical for the stock market in general is 11%. It is reasonable to expect this kind of return in the future. This is because over the long-term, the returns of the stock market tend to be around the average, although they may vary widely in shorter timeframes. As seen in the table, the average annual return during the 1950-2010 period was 11%. Hence, this kind of return can be expected over the long term in the future