The table below shows the difference in returns between stocks andtreasury bills and the difference between stocks and treasury bondsat ten year intervals:
(table)
Years Stocks vs. Bonds Stocks vs. Bills
1964-73 3.7% 8.3%
1974-83 0.2% 8.6%
1984-93 7.5% 5.4%
1994-2003 4.8% 2.1%
a) At the end of 1973, the yield on Treasury Bonds was 6.6% and theyield on T-bills was 7.2%. Using these figures and the historicaldata above from 1964-73, construct 2 estimates of the expectedreturn on equities as of Dec. 1973.
b) At the end of 1983, the yield on Treasury bonds was 6.6% and theYield on the bill was 7.2% Using these figures and the historicaldata above from 1974-83, construct 2 estimates of the expectedreturn on equities as of Dec. 1983.
c)At the end of 1993, the yield on Treasury bonds was 6.6% and theYield on the bill was 2.8% Using these figures and the historicaldata above from 1984-93, construct 2 estimates of the expectedreturn on equities as of Dec. 1993.
d)At the end of 2003, the yield on Treasury bonds was 5.0% and theYield on the bill was 1.0% Using these figures and the historicaldata above from 1994-2009, construct 2 estimates of the expectedreturn on equities as of Dec. 2003.
e) What lessons do you learn from this excercise? How much do yourestimates of the ecpected return on equities vary over time and whydo they vary?
The table below shows the difference in returns between stocks andtreasury bills and the difference between stocks and treasury bondsat ten year intervals:
(table)
Years Stocks vs. Bonds Stocks vs. Bills
1964-73 3.7% 8.3%
1974-83 0.2% 8.6%
1984-93 7.5% 5.4%
1994-2003 4.8% 2.1%
a) At the end of 1973, the yield on Treasury Bonds was 6.6% and theyield on T-bills was 7.2%. Using these figures and the historicaldata above from 1964-73, construct 2 estimates of the expectedreturn on equities as of Dec. 1973.
b) At the end of 1983, the yield on Treasury bonds was 6.6% and theYield on the bill was 7.2% Using these figures and the historicaldata above from 1974-83, construct 2 estimates of the expectedreturn on equities as of Dec. 1983.
c)At the end of 1993, the yield on Treasury bonds was 6.6% and theYield on the bill was 2.8% Using these figures and the historicaldata above from 1984-93, construct 2 estimates of the expectedreturn on equities as of Dec. 1993.
d)At the end of 2003, the yield on Treasury bonds was 5.0% and theYield on the bill was 1.0% Using these figures and the historicaldata above from 1994-2009, construct 2 estimates of the expectedreturn on equities as of Dec. 2003.
e) What lessons do you learn from this excercise? How much do yourestimates of the ecpected return on equities vary over time and whydo they vary?
