Given the spreadsheet, containing the realized return of the S&P 500 from 1926-2

Question

Given the spreadsheet, containing the realized return of the S&P 500 from 1926-2014. Starting in 1929, divide the next 80 years (1929-2008) of the sample into four periods of 20 years each. For each 20-year period, calculate the final amount an investor would have earned given a $2,750 initial investment. Also express your answer as an annualized return. If risk were eliminated by holding stocks for 20 years, what would you expect to find? What can you conclude about long-run diversification?

The amount after the 1929-1948 period is and the return is %.

(Round the amount to the nearest cent and the return to four decimal places.)

The amount after the 1949-1968 period is and the return is

(Round the amount to the nearest cent and the return to four decimal places.)

The amount after the 1969-1988 period is and the return is

(Round the amount to the nearest cent and the return to four decimal places.)

The amount after the 1989-2008 period is and the return is

(Round the amount to the nearest cent and the return to four decimal places.)

If risk were eliminated by holding stocks for 20 years, what would you expect to find? What can you conclude about long-run diversification?

If risk were eliminated by holding stocks for 20 years, you would expect to find Different/Similiar returns for all four periods, which you Do/do not

Yearly returns from 1926-2014 for the S&P 500, small stocks, corporate bonds, world portfolio,
Treasury bills, and inflation (as measured by the CPI)

Given the spreadsheet, containing the realized return of the S&P 500 from 1926-2014. Starting in 1929, divide the next 80 years (1929-2008) of the sample into four periods of 20 years each. For each 20-year period, calculate the final amount an investor would have earned given a $2,750 initial investment. Also express your answer as an annualized return. If risk were eliminated by holding stocks for 20 years, what would you expect to find? What can you conclude about long-run diversification?

The amount after the 1929-1948 period is and the return is %.

(Round the amount to the nearest cent and the return to four decimal places.)

The amount after the 1949-1968 period is and the return is

(Round the amount to the nearest cent and the return to four decimal places.)

The amount after the 1969-1988 period is and the return is

(Round the amount to the nearest cent and the return to four decimal places.)

The amount after the 1989-2008 period is and the return is

(Round the amount to the nearest cent and the return to four decimal places.)

If risk were eliminated by holding stocks for 20 years, what would you expect to find? What can you conclude about long-run diversification?

If risk were eliminated by holding stocks for 20 years, you would expect to find Different/Similiar returns for all four periods, which you Do/do not

Yearly returns from 1926-2014 for the S&P 500, small stocks, corporate bonds, world portfolio,
Treasury bills, and inflation (as measured by the CPI)

Year S&P 500 Small Stocks Corp Bonds World Portfolio Treasury Bills CPI 1926 0.11138 -0.072 0.06285 0.228 0.03194 -0.01188 1927 0.37126 0.25754 0.0655 0.25326 0.03125 -0.02163 1928 0.43308 0.46872 0.03377 0.33463 0.03824 -0.01229 1929 -0.08907 -0.50467 0.04321 -0.07692 0.04737 0.00746 1930 -0.25257 -0.45583 0.06343 -0.22574 0.02347 -0.0642 1931 -0.43858 -0.50216 -0.0238 -0.39305 0.01023 -0.09235 1932 -0.08861 0.08696 0.12198 0.0303 0.00806 -0.10465 1933 0.52895 1.872 0.05255 0.66449 0.00293 0.00974 1934 -0.02341 0.25209 0.09728 0.02552 0.00155 0.01286 1935 0.47208 0.64739 0.0686 0.22782 0.00165 0.03175 1936 0.32801 0.87508 0.0622 0.19283 0.00175 0.01231 1937 -0.35258 -0.53403 0.02546 -0.1695 0.00319 0.0304 1938 0.33199 0.26275 0.04357 0.05614 0.00041 -0.0295 1939 -0.0091 0.00184 0.04247 -0.01441 0.00008 0 1940 -0.10082 -0.1234 0.04512 0.03528 -0.00058 0.00912 1941 -0.11767 -0.13728 0.01788 0.18744 0.00042 0.0994 1942 0.21076 0.52504 0.03119 0.01189 0.00262 0.09041 1943 0.25758 1 0.03365 0.19895 0.0034 0.02764 1944 0.19694 0.60408 0.03101 -0.1024 0.00321 0.02445 1945 0.36461 0.82665 0.03512 0.11032 0.00321 0.02148 1946 -0.0818 -0.12608 0.02558 -0.15124 0.00352 0.18224 1947 0.0524 -0.02658 0.0045 0.03196 0.00461 0.08893 1948 0.05099 -0.06609 0.03707 -0.0573 0.00979 0.02904 1949 0.18065 0.21502 0.04327 0.05421 0.01106 -0.02116 1950 0.30579 0.45908 0.01891 0.25477 0.01213 0.05946 1951 0.24553 0.09767 -0.0021 0.22446 0.01483 0.06122 1952 0.18501 0.06472 0.03427 0.15822 0.01642 0.00641 1953 -0.01099 -0.05985 0.02061 0.04838 0.0178 0.00796 1954 0.52404 0.65232 0.04658 0.49823 0.00863 -0.0079 1955 0.31429 0.2211 0.01075 0.24739 0.01555 0.00478 1956 0.06627 0.03459 -0.01792 0.06581 0.02422 0.02853 1957 -0.10853 -0.15053 0.04469 -0.06017 0.03129 0.02928 1958 0.43344 0.70923 0.00849 0.34456 0.01415 0.01796 1959 0.11904 0.1868 0.00157 0.23303 0.02815 0.01765 1960 0.00483 -0.05004 0.06722 0.03492 0.02582 0.01301 1961 0.26811 0.30836 0.03681 0.20778 0.02159 0.00713 1962 -0.08784 -0.1295 0.06204 -0.06212 0.02724 0.01275 1963 0.22691 0.18093 0.03167 0.15381 0.03151 0.01678 1964 0.16358 0.19405 0.03988 0.11247 0.03518 0.00963 1965 0.12356 0.36365 0.02082 0.09832 0.03962 0.01907 1966 -0.10105 -0.07302 -0.00255 -0.10116 0.04705 0.03476 1967 0.23942 0.77916 -0.01162 0.21283 0.04147 0.03101 1968 0.11002 0.47611 0.22457 0.13941 0.05294 0.04637 1969 -0.08466 -0.32219 -0.02459 -0.03858 0.06591 0.06228 1970 0.03986 -0.04503 0.11179 -0.01984 0.06383 0.05524 1971 0.14325 0.16347 0.09682 0.19567 0.04317 0.03312 1972 0.18936 0.04222 0.08323 0.23547 0.03891 0.03413 1973 -0.14791 -0.35936 0.02987 -0.14506 0.07059 0.087 1974 -0.26539 -0.27327 0.00233 -0.2448 0.08078 0.12328 1975 0.3725 0.82769 0.11039 0.34493 0.05821 0.06962 1976 0.23675 0.57116 0.14557 0.14712 0.05156 0.04824 1977 -0.07388 0.19915 0.0551 0.02002 0.05152 0.0672 1978 0.0644 0.2042 0.01833 0.18216 0.07308 0.09035 1979 0.18353 0.39698 -0.01558 0.12671 0.1069 0.13308 1980 0.32266 0.29141 -0.04976 0.27721 0.11523 0.12521 1981 -0.05053 0.14617 0.08977 -0.03305 0.14856 0.08912 1982 0.21483 0.3225 0.34898 0.11272 0.10664 0.03797 1983 0.225 0.48048 0.07317 0.2328 0.08847 0.03833 1984 0.06152 -0.02495 0.17103 0.05773 0.09956 0.03943 1985 0.31648 0.29125 0.29486 0.4177 0.07677 0.03793 1986 0.18603 0.05908 0.20913 0.42799 0.06057 0.01089 1987 0.05171 -0.09204 -0.01578 0.16764 0.05384 0.04423 1988 0.16608 0.20288 0.13793 0.2395 0.06323 0.0442 1989 0.31686 0.01488 0.1531 0.17194 0.08221 0.04656 1990 -0.03104 -0.36325 0.08606 -0.16517 0.0768 0.061 1991 0.30466 0.41799 0.15869 0.18966 0.05507 0.03081 1992 0.07619 0.22075 0.10642 -0.0466 0.03401 0.02897 1993 0.10079 0.13792 0.14662 0.23129 0.02899 0.02755 1994 0.0132 -0.01096 -0.02435 0.05584 0.0388 0.02652 1995 0.37578 0.20056 0.21991 0.21318 0.05532 0.02555 1996 0.2296 0.21511 0.04239 0.13993 0.05145 0.03322 1997 0.33363 0.3208 0.10847 0.16227 0.05082 0.01688 1998 0.28579 -0.11975 0.10908 0.24795 0.04781 0.01607 1999 0.21042 -0.0126 -0.03037 0.25354 0.04561 0.02697 2000 -0.09104 -0.0249 0.11694 -0.12928 0.05756 0.03384 2001 -0.11886 0.32781 0.11461 -0.16521 0.03779 0.01563 2002 -0.22101 -0.05624 0.11181 -0.19541 0.01634 0.02357 2003 0.28685 0.69151 0.09229 0.33761 0.01018 0.0188 2004 0.10882 0.31392 0.0651 0.15247 0.012 0.03275 2005 0.04911 0.03988 0.07734 0.10023 0.02963 0.03417 2006 0.15795 0.26379 0.04167 0.20652 0.04786 0.02526 2007 0.05494 -0.111 0.04742 0.09566 0.04675 0.04086 2008 -0.36998 -0.45864 0.13449 -0.40334 0.01474 0.00101 2009 0.26464 1.12127 0.00018 0.30793 0.00097 0.02709 2010 0.15064 0.3361 0.07972 0.12339 0.00122 0.01496 2011 0.02112 -0.07155 0.14703 -0.05017 0.00043 0.02967 2012 0.16003 0.21311 0.04513 0.16537 0.00057 0.01733 2013 0.32388 0.50814 -0.03067 0.27365 0.00028 0.01518 2014 0.13688 -0.04541 0.11658 0.05504 0.00016 0.00748

Explanation / Answer

N R1 (1+R1) Year S&P 500 S&P 500(1+return) 1926 0.11138 1.11138 1927 0.37126 1.37126 Year (1+R1) Year (1+R1) (1+R1) Year (1+R1) 1928 0.43308 1.43308 1929-1948 S&P(1+Return) 1949-1968 S&P(1+Return) 1969-1988 S&P(1+Return) 1989-2008 S&P(1+Return) 1929 -0.0891 0.91093 1929 0.91093 1949 1.18065 1969 0.91534 1989 1.31686 1930 -0.2526 0.74743 1930 0.74743 1950 1.30579 1970 1.03986 1990 0.96896 1931 -0.4386 0.56142 1931 0.56142 1951 1.24553 1971 1.14325 1991 1.30466 1932 -0.0886 0.91139 1932 0.91139 1952 1.18501 1972 1.18936 1992 1.07619 1933 0.52895 1.52895 1933 1.52895 1953 0.98901 1973 0.85209 1993 1.10079 1934 -0.0234 0.97659 1934 0.97659 1954 1.52404 1974 0.73461 1994 1.0132 1935 0.47208 1.47208 1935 1.47208 1955 1.31429 1975 1.3725 1995 1.37578 1936 0.32801 1.32801 1936 1.32801 1956 1.06627 1976 1.23675 1996 1.2296 1937 -0.3526 0.64742 1937 0.64742 1957 0.89147 1977 0.92612 1997 1.33363 1938 0.33199 1.33199 1938 1.33199 1958 1.43344 1978 1.0644 1998 1.28579 1939 -0.0091 0.9909 1939 0.9909 1959 1.11904 1979 1.18353 1999 1.21042 1940 -0.1008 0.89918 1940 0.89918 1960 1.00483 1980 1.32266 2000 0.90896 1941 -0.1177 0.88233 1941 0.88233 1961 1.26811 1981 0.94947 2001 0.88114 1942 0.21076 1.21076 1942 1.21076 1962 0.91216 1982 1.21483 2002 0.77899 1943 0.25758 1.25758 1943 1.25758 1963 1.22691 1983 1.225 2003 1.28685 1944 0.19694 1.19694 1944 1.19694 1964 1.16358 1984 1.06152 2004 1.10882 1945 0.36461 1.36461 1945 1.36461 1965 1.12356 1985 1.31648 2005 1.04911 1946 -0.0818 0.9182 1946 0.9182 1966 0.89895 1986 1.18603 2006 1.15795 1947 0.0524 1.0524 1947 1.0524 1967 1.23942 1987 1.05171 2007 1.05494 1948 0.05099 1.05099 1948 1.05099 1968 1.11002 1988 1.16608 2008 0.63002 1949 0.18065 1.18065 1950 0.30579 1.30579 PERIOD OF 20 YEARS FROM 1929-1948 Initial Investment $2,750 1951 0.24553 1.24553 Amount after 1929-1948 period=$2750*0.91093*0.74743*0.56142*…..1.05099= Amount after 1929-1948 period $4,788.56 1952 0.18501 1.18501 Annualized Return for 1929-1948 period=((0.91093*0.74743*0.56142*…..1.05099)^(1/20))-1 Annualized Return 0.028119497 ((4788.56/2750)^(1/20))-1 1953 -0.011 0.98901 Annualized Return in percentage 2.81% 1954 0.52404 1.52404 1955 0.31429 1.31429 PERIOD OF 20 YEARS FROM 1949-1968 Initial Investment $4,789 1956 0.06627 1.06627 Amount after 1949-1968 period=$4789*1.18065*1.30579*1.24553*………1.11002= Amount after 1949-1968 period $75,888.02 1957 -0.1085 0.89147 Annualized Return for 1949-1968 period=((1.18065*1.30579*1.24553*…..1.11002)^(1/20))-1 Annualized Return 0.148149475 ((75888.02/4789)^(1/20))-1 1958 0.43344 1.43344 Annualized Return in percentage 14.81% 1959 0.11904 1.11904 1960 0.00483 1.00483 PERIOD OF 20 YEARS FROM 1969-1988 Initial Investment $75,888 1961 0.26811 1.26811 Amount after 1969-1988 period=$75888*0.91534*1.03986*1.14325*……1.16608= Amount after 1969-1988 period $462,505.17 1962 -0.0878 0.91216 Annualized Return for 1969-1988 period=((0.91534*1.03986*1.14325*………….1.16608)^(1/20))-1 Annualized Return 0.094579142 ((462505.17/75888)^(1/20))-1 1963 0.22691 1.22691 Annualized Return in percentage 9.46% 1964 0.16358 1.16358 1965 0.12356 1.12356 PERIOD OF 20 YEARS FROM 1989-2008 Initial Investment $462,505 1966 -0.1011 0.89895 Amount after 1989-2008 period=$462505*1.31686*0.96896*1.30466*……..0.63002= Amount after 1969-1988 period $2,332,414.95 1967 0.23942 1.23942 Annualized Return for 1989-2008 period=((1.31686*0.96896*1.30466*………..0.63002)^(1/20))-1 Annualized Return 0.084262559 ((2332414.95/462505)^(1/20))-1 1968 0.11002 1.11002 Annualized Return in percentage 8.43% 1969 -0.0847 0.91534 1970 0.03986 1.03986 Annualized return for 80 years 1929-2008 8.79% ((2332414.95/2750)^(1/80))-1 1971 0.14325 1.14325 1972 0.18936 1.18936 1973 -0.1479 0.85209 1974 -0.2654 0.73461 1975 0.3725 1.3725 1976 0.23675 1.23675 1977 -0.0739 0.92612 1978 0.0644 1.0644 1979 0.18353 1.18353 1980 0.32266 1.32266 1981 -0.0505 0.94947 1982 0.21483 1.21483 1983 0.225 1.225 1984 0.06152 1.06152 1985 0.31648 1.31648 1986 0.18603 1.18603 1987 0.05171 1.05171 1988 0.16608 1.16608 1989 0.31686 1.31686 1990 -0.031 0.96896 1991 0.30466 1.30466 1992 0.07619 1.07619 1993 0.10079 1.10079 1994 0.0132 1.0132 1995 0.37578 1.37578 1996 0.2296 1.2296 1997 0.33363 1.33363 1998 0.28579 1.28579 1999 0.21042 1.21042 2000 -0.091 0.90896 2001 -0.1189 0.88114 2002 -0.221 0.77899 2003 0.28685 1.28685 2004 0.10882 1.10882 2005 0.04911 1.04911 2006 0.15795 1.15795 2007 0.05494 1.05494 2008 -0.37 0.63002 2009 0.26464 1.26464 2010 0.15064 1.15064 2011 0.02112 1.02112 2012 0.16003 1.16003 2013 0.32388 1.32388 2014 0.13688 1.13688

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