Question

Market Index Big/Growth BigNalue Small/Growth Smallalue A. 1926-2016 Mean excess return (annualized) Standard deviation (annualzed) Sharpe ratio Lower partial SD (annualzed) 08 30 18.64 045 19.49 11.67 24.62 0.47 2278 8.79 2621 1556 18.50 055 25.98 1857 -0.10 19.05 -19.53 -15.63 0.70 783 -20.59 2221 -13.95 -11.87 -14.68 VaR (1 %) actual (monthly) returns VaR( 1 %) normal distribution %Of monthly returns more than 3 -11.80 17.87 0 94% 0.75% SD below mean Expected shortfall (monthly B. 1952-2016 Mean excess return (annualized) Standard deviation (annualzed) Sharpe ratio Lower parsal SD (annualzed) -20.14 7.52 14.89 0.50 1651 -0.52 5.54 0.46 15.67 -0.36 15.95 062 16.01 -0.29 2 26 -1194 989 705 22.33 0.32 1842 0.72 2.17 348 -10.90 -9.84 -10.80 VaR ( 1 %) actual (monthly returns VaR(1 %) normal distribution %Of monthly returns more than 3 -9.37 14.41 -11.26 0 66% 0.66% 080% 1.19% SD below mean Expected shortfall (monthly -18.85 -21.30 -24.66 Table 54 Statistics for monthly excess returns on the market index and four "style" portfolios Source松Authors' caladations using data from Prot Kenneth French's web site ttadimbaaudaartmouthad'pagestacuhymhenN Table 5 Average Annual Rates Standard Devlation Statisties for T.bill ratos inflation rates, and real rates, 1926-2015 T-BilsInflation Real TB T-Bl Inflation Real TB 0.56 381 All months First haf Recent haf 445 1.04 168 5.95 0.90 Sources: Annual rotes of retun trom rolingover month T-bills: Kenneth French annual Inflctlon rotes Bureau of Labor Statstics Suppose that the inflation rate is expected to be 3% in the near future using the historical data provided in labes2 and lable 54 what would be your predictions for the following? (Round your onswers to 2 decimal places) a. The T-bill rate? b. The expected rate of return on the BigValue portfolio? c. The risk premium on the stock market?

Answer 1

Solution: - Holding Pestod stock toon yeaz 1926 to 2016 is Calcudaked vy Summaton of sisk fe Yate and mean excess retum foγ Pesod on Bi/value stock 14.67 Hholaing Pestod xetuan an Biy value ony yeay (426 to lol6 is 14,677。