Assignment
Please pay attention to the pattern of returns for T-bills as it is all positive, and Stocks and T-bonds positive/negative (you received copy in an earlier e-mail). The average rates (arithmatic or geometric) have been higher in the early years up to 1960, then lower and negative in the 2000-2010. Your take and thought on the subject.
1. What is the average geometric return over 1990-2000?
Geometric return=[(1+r1)(1+r2)...(1+rn)]^1/n -1
where r1, r2, rn are return on the stock in 1, 2 and nth period.
2. Stocks or bonds, which one is overpriced and why? Support your answer with facts not an assumption, Use historical P/E and yield spread (stock yield that is E/P less yield in T-bond). Correct analysis get you one letter grade bonus