Purchase Solution

Portfolio analysis

Not what you're looking for?

Ask Custom Question

1) During the past year, you had a portfolio that contained U.S. government T-bills, long-term government bonds, and common stocks. The rates of return on each of them were as follows: U.S. government T-bills 5.50%, U.S. government long-term bonds 7.50%, U.S. common stocks 11.60%. During the year, the consumer price index, which measures the rate of inflation, went from 160 to172 (1982 - 1984 = 100). Compute the rate of inflation during this year. Compute the real rates of return on each of the investments in your portfolio based on the inflation rate.

2) Assume that the consensus required rate of return on common stocks is 14 percent. In addition, you read in Fortune that the expected rate of inflation is 5 percent and the estimated long-term real growth rate of the economy is 3 percent. What interest rate would you expect on U.S. government T-bills? What is the approximate risk premium for common stocks implied by these data?

3) a) Someone in the 15 percent tax bracket can earn 10 percent on his investments in a tax exempt IRA account. What will be the value of a $10,000 investment in 5 years? 10 years? 20 years?
b) Suppose the preceding 10 percent return is taxable rather than tax-deferred. What will be the after tax value of his $10,000 investment after 5, 10, and 20 years?

4) Assume that the rate of inflation during all these periods was 3 percent a year. Compute the real value of the two tax-deferred portfolios in problems 4a and 5a.

Purchase this Solution

Solution Summary

Calculating the Rate of Inflation, risk premium on common stock, after tax value, etc

Purchase this Solution

Free BrainMass Quizzes
Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media


This tests some key elements of major motivation theories.

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Introduction to Finance

This quiz test introductory finance topics.