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7-2

             
The following table shows the nominal returns on U.S. Stocks and the rate of inflation:  
             
             
    Year Nominal Return (%) Inflation (%)    
    2004 12.5 3.3    
    2005 6.4 3.4    
    2006 15.8 2.5    
    2007 5.6 4.1    
    2008 -37.2 0.1    
             
  a)     What was the standard deviation of the market returns?    
 

b)return.

 

8-6)

Suppose that the Treasury bill rate were 6% rather than 4%. Assume that the expected return on the market stays at 10%. Use the betas in Table 8.2 (p. 193) - also provided below.
             
a. Calculate the expected return from Dell.
b. Find the highest expected return that is offered by one of these stocks.
c. Find the lowest expected return that is offered by one of these stocks.
d. Would Ford offer a higher or lower expected return if the interest rate were 6% rather than 4%? Assume that the expected market return stays at 10%. 
e. Would Exxon Mobil offer a higher or lower expected return if the interest rate were 8%?
     
             

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