Chapter_10_sol_students

The probabilityofthefdaapprovingadrugis50

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Unformatted text preview: erval = mean return + or - 2 standard errors, so lower bound = .311 - 2 × .0542 = .2026 or 20.26% upper bound = .311 + 2 × .0542 = .4194 or 41.94% Diff: 3 Topic: 10.3 Historical Returns of Stocks and Bonds Skill: Analytical 10.4 The Historical Tradeoff Between Risk and Return Use the table for the question(s) below. Consider the following average annual returns: Investment Average Return Small Stocks 23.2% S&P 500 13.2% Corporate Bonds 7.5% Treasury Bonds 6.2% Treasury Bills 4.8% 14) What is the excess return for the portfolio of small stocks? A) 10.0% B) 15.7% C) 18.4% D) 17.0% Answer: C Explanation: A) B) C) Average Return - Tbill Investment Average Return Return Small Stocks 23.2% 18.40% S&P 500 13.2% 8.40% Corporate Bonds 7.5% 2.70% Treasury Bonds 6.2% 1.40% Treasury Bills 4.8% 0.0% D) Diff: 1 Topic: 10.4 The Historical Tradeoff Between Risk and Return Skill: Analytical Use the information for the question(s) below. Big Cure and Little Cure are both pharmaceutical companies. Big Cure presently has a potential ʺblockbusterʺ drug before the Food and Drug Administration (FDA) waiting for approval. If approved, Big Cureʹs blockbuster drug will produce $1 billion in net income for Big Cure. Little Cure has 10 separate less important drugs before the FDA waiting for approval. If approved, each of Little Cureʹs drugs would produce $100 million in net income for Little Cure. The probability...
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