The following table shows the nominal returns on us stocks

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The following table shows the nominal returns on U.S. stocks and the rate of inflation.

a. What was the standard deviation of the market returns?

b. Calculate the average real return.

          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

Suppose the standard deviation of the market return is 20%.

a. What is the standard deviation of returns on a well-diversified portfolio with a beta of 1.3?

b. What is the standard deviation of returns on a well-diversified portfolio with a beta of 0?

c. A well-diversified portfolio has a standard deviation of 15%. What is its beta?

d. A poorly diversified portfolio has a standard deviation of 20%. What can you say about its beta?

Reference no: EM13381056

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