Paper details:

Part 1

Using data in Excel file comparison.xlsx, construct four graphs and one table as follows. Your graphs and table will be based on the years 1945 to 2015, rather than the longer period in Siegel, and include data on only two assets: S&P 500 total returns and US Gov. Bond total returns (and cash in Graph 1). The CPI is also included so that you can construct real values and real returns.
Part 2. Essay: Are stocks a good long-run investment?

In this part you will evaluate Seigel’s main argument that stocks are a good investment for the long-run. Write a two-page essay (typed, double spaced) that explores this argument by answering the following questions. Since this is an essay, do not include the questions or the numbers, but be sure to address all the questions and points. (You may change the order if it helps your essay.) A brief introduction that explains your main theme – stocks for the long run – is a great way to start.

Refer to the graphs in your answers by their respective numbers. For example, you could write, “As we can see from Graph 2, stock returns were highest in year x, when investors earned x % return.” Your essay will be evaluated on clarity and originality, and should be in grammatically correct English.

1.Suppose you invest in the stock market for one year only during the period from 1945 to 2015. Based on Graph 2 what and when is the highest return you could have earned and the lowest return you could have earned? Based on the normal distribution, what range would you expect your return to fall in about 95 percent of the time? (See also Estrada page 27.)

2.Diversification reduces risk and one way to diversify is by investing in a longer period. Based on Graph 3, summarize the advantages of a longer holding period in terms of reducing risk. If you have a ten year holding period, what and when is the highest return you could have earned and the lowest return you could have earned?

3.Another way to diversify is by holding a portfolio of different assets. Based on Graph 4 and the discussion in Estrada Chpt. 4, identify and explain the minimum variance portfolio and the efficient set.

4.The data in Graph 1 and Table 1 show the long run return to investing in stocks compared to other assets in the past. Suppose you invest today $1000 in a diversified stock portfolio, $1000 in bonds, and $1000 in a safe deposit box. Further suppose inflation averages 2 percent per year for the next 50 years. Assuming real returns are the same as in the past, how much will each of these investments be worth in 50 years in today’s dollars?

Do you agree with Seigal that stocks are a good investment for the long-run? In particular, do you think past stock performance is a good guide to future returns? Why or why not?

Paper details:

Part 1

Using data in Excel file comparison.xlsx, construct four graphs and one table as follows. Your graphs and table will be based on the years 1945 to 2015, rather than the longer period in Siegel, and include data on only two assets: S&P 500 total returns and US Gov. Bond total returns (and cash in Graph 1). The CPI is also included so that you can construct real values and real returns.
Part 2. Essay: Are stocks a good long-run investment?

In this part you will evaluate Seigel’s main argument that stocks are a good investment for the long-run. Write a two-page essay (typed, double spaced) that explores this argument by answering the following questions. Since this is an essay, do not include the questions or the numbers, but be sure to address all the questions and points. (You may change the order if it helps your essay.) A brief introduction that explains your main theme – stocks for the long run – is a great way to start.

Refer to the graphs in your answers by their respective numbers. For example, you could write, “As we can see from Graph 2, stock returns were highest in year x, when investors earned x % return.” Your essay will be evaluated on clarity and originality, and should be in grammatically correct English.

1.Suppose you invest in the stock market for one year only during the period from 1945 to 2015. Based on Graph 2 what and when is the highest return you could have earned and the lowest return you could have earned? Based on the normal distribution, what range would you expect your return to fall in about 95 percent of the time? (See also Estrada page 27.)

2.Diversification reduces risk and one way to diversify is by investing in a longer period. Based on Graph 3, summarize the advantages of a longer holding period in terms of reducing risk. If you have a ten year holding period, what and when is the highest return you could have earned and the lowest return you could have earned?

3.Another way to diversify is by holding a portfolio of different assets. Based on Graph 4 and the discussion in Estrada Chpt. 4, identify and explain the minimum variance portfolio and the efficient set.

4.The data in Graph 1 and Table 1 show the long run return to investing in stocks compared to other assets in the past. Suppose you invest today $1000 in a diversified stock portfolio, $1000 in bonds, and $1000 in a safe deposit box. Further suppose inflation averages 2 percent per year for the next 50 years. Assuming real returns are the same as in the past, how much will each of these investments be worth in 50 years in today’s dollars?

Do you agree with Seigal that stocks are a good investment for the long-run? In particular, do you think past stock performance is a good guide to future returns? Why or why not?