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Use the following historical average returns and standard deviations to answer the question below
Use the following historical average returns and standard deviations to answer the
question below.
|
Asset |
Average |
Return Standard Deviation |
|
Canadian common stocks |
13.20% |
16.62% |
|
US common stocks |
15.59% |
16.86% |
|
Long bonds |
7.64% |
10.57% |
|
Small-company stocks |
14.79% |
23.68% |
|
Treasury bills |
6.04% |
4.04% |
Based on the historical data above, what is your reward for bearing risk of owning small-
company stocks rather than Canadian common stocks?
- 1.59%
- 0.80%
- 2.39%
- 1.60%
- 4.25%
Expert Solution
Solution :-
The reward for bearing risk of owning small company stock rather than Canadian common stock is :-
= Average return of small company stocks - Average return of Canadian common stock
= 14.79% - 13.20%
= 1.59%
The answer is : (A) 1.59%
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