Risk and return statistics

Risk and return statistics

1. 1. Approximately what has been the long-run real annual return on US large-cap stocks (1926-2024)?

   About 0.5%About 2.5%About 7.5%About 15%

2. 2. Asset A: E[R]=12%, σ=30%. Asset B: E[R]=8%, σ=20%. Correlation 0.3. 50/50 portfolio expected return (%)?

   %

3. 3. Same two assets. 50/50 portfolio standard deviation (%)? Round to integer.

   %

4. 4. Why is idiosyncratic risk not priced (no expected return for bearing it) in CAPM-style models?

   Idiosyncratic risk doesn't existBecause investors can diversify it away for free by holding many stocks; only systematic risk earns a premiumBecause it's too small to matterBecause regulators require it