What is the range of returns for large cap stocks you would


Investment Opportunities information given:

Beased on Historical date (Annual Stats fro 1966-1977)
Investment Average return Standard deviation
Small Cap Stocks 18.0% 15.0%
Large cap stocks 15.0% 15.0%
U.S treasuray bonds 5.4% 8.35%
U.S treasury bills 4.1% 3.25%

a. What is the risk premium on small cap stocks?

b. What is the range of returns for large cap stocks you would expect to see 95% of the time?

c. How often will you lose money on large cap stocks? Show you work to justify response.

d. Given this table, would you choose to invest in small cap stocks over large cap stocks? Summarize your answer in a sentence.

 

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