Ross, Westerfield, Jaffe, and Jordan's Excel Master

Corporate Finance, 13th edition

by Brad Jordan and Joe Smolira
Version 13.0

Chapter 10
In these spreadsheets, you will learn how to use the following Excel fu

Column charts
COUNTIF
Sorting data
Filtering data
Rank and percentile
AVERAGE
Sorting data (2)
Frequency distribution
Frequency distribution charts
VAR
STDEV
VARP
STDEVP
NORMDIST
NORMINV
Descriptive statistics
GEOMEAN
Pivot Tables
The following conventions are used in these spreadsheets:

1) Given data in blue

2) Calculations in red

NOTE: Some functions used in these spreadsheets may require that

the "Analysis ToolPak" or "Solver Add-In" be installed in Excel.
To install these, click on the File tab
then "Excel Options," "Add-Ins" and select
"Go." Check "Analysis ToolPak" and
"Solver Add-In," then click "OK."
he following Excel functions:
 Chapter 10 - Section 1
Returns

Calculating returns in Excel is a relatively simple matter since we only need to input basic equations. Consider the in

Shares 100
Beginning price $ 37.00
Ending price $ 40.33
Dividend per share $ 1.85

With this information, we can calculate the dollar returns and percentage returns as:

Total dollar capital gains $ 333.00

Dividend income $ 185.00
Total dollar return $ 518.00

Capital gains return 9.00%

Dividend yield 5.00%
Total return 14.00%

Yahoo! Finance Returns

A popular website that provides daily stock prices is Yahoo! Finance. However, if you use the prices quoted on this w
careful to use the correct information. Yahoo! Finance reports two closing stock prices, the actual closing price and
dividends. In a stock split, the number of shares is increased and the stock price is decreased. For example, in a 2-fo
since shareholders would receive 2 shares for every 1 share they currently own, and the stock price would be halved

Suppose a stock is currently trading at $120 per share and undergoes a 2-for-1 stock split. Also assume that the stoc
price on Yahoo! Finance would report prices of $120 and $60, respectively, which looks like a 50 percent decrease in
during the day was zero because although the stock price was cut in half, the number of shares they owned was dou
reported as $60 for both days.

The adjusted close reported on Yahoo! Finance also adjusts for dividends. Consider a stock that is selling for $100 at
of $108 at the end of May. The stockholder return for this period was ($108 - 100 + 5) / $100 = 13 percent. In this ca
while the adjusted close for the end of April would be $95.581, which is a return of ($108 - 95.581) / $95.581 = 13 p
over a 12-month period using both the closing price and dividend, and the adjusted close.

Return with
closing price
Date Close Dividend Adj Close and dividend
5/1/2020 $ 124.90 $ 117.0266
6/1/2020 $ 120.77 $ 1.63 $ 114.6745 -2.00%
 7/1/2020 $ 122.94 $ 116.7350 1.80%
8/1/2020 $ 123.31 $ 117.0863 0.30%
9/1/2020 $ 121.67 $ 1.93 $ 117.0417 0.24%
10/1/2020 $ 111.66 $ 107.4125 -8.23%
11/1/2020 $ 123.52 $ 118.8213 10.62%
12/1/2020 $ 125.88 $ 1.63 $ 122.8475 3.23%
1/1/2021 $ 119.11 $ 116.2406 -5.38%
2/1/2021 $ 118.93 $ 116.0649 -0.15%
3/1/2021 $ 133.26 $ 1.63 $ 131.7875 13.42%
4/1/2021 $ 141.88 $ 140.3123 6.47%
5/1/2021 $ 143.74 $ 142.1517 1.31%

Notice, the return calculations are very similar. The reason they are not exact is that Yahoo! Finance reports the adju
rounding can cause a slight difference in the percentage return calculation. Consider the example we used above. U
that the return is actually 12.99 percent, not 13 percent. If you need total returns, the adjusted close will give you a
especially since Yahoo! Finance won't download prices and dividends in the same spreadsheet. However, if you nee
very accurate returns, you will need to use the closing price and the dividends, not the adjusted close.
nput basic equations. Consider the information from the Video Concepts Company:

rns as:

if you use the prices quoted on this website to calculate the return of a stock, you must be
k prices, the actual closing price and the adjusted close which is adjusted for stock splits and
e is decreased. For example, in a 2-for-1 stock split, the number of shares would be doubled
n, and the stock price would be halved.

stock split. Also assume that the stock price remains unchanged during the day. The closing
ich looks like a 50 percent decrease in the stock price. In actuality, the shareholder return
umber of shares they owned was doubled. In this case, the adjusted closing price would be

sider a stock that is selling for $100 at the end of April, pays a dividend of $5, and has a price
00 + 5) / $100 = 13 percent. In this case, the adjusted close at the end of May would be $108,
rn of ($108 - 95.581) / $95.581 = 13 percent. Below, we have calculated the return for IBM
usted close.

Return with
adjusted close

-2.01%
 1.80%
0.30%
-0.04%
-8.23%
10.62%
3.39%
-5.38%
-0.15%
13.55%
6.47%
1.31%

s that Yahoo! Finance reports the adjusted close to the nearest hundreth of a cent. This
nsider the example we used above. Using the adjusted price of $95.581, calculate for yourself
rns, the adjusted close will give you a fairly accurate return calculation that is much easier,
me spreadsheet. However, if you need capital gains returns and dividend yields separately, or
not the adjusted close.
 Chapter 10 - Section 2
Holding Period Returns

In the text and on the next tab, we show the historical returns by year for various asset categories for the period 19
will often allow you to better visualize the data over time. Below, we have produced a chart similar to Figure 10.5 in
stock returns.

Large-Company Stock Returns: 1926 - 2020

60%

40%

20%
Total Annual Return

0%
26 29 32 35 38 41 44 47 50 53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 0 1
1 9 1 9 19 1 9 1 9 19 1 9 1 9 19 1 9 1 9 19 19 1 9 19 19 1 9 19 1 9 1 9 19 1 9 1 9 19 19 20

-20%

-40%

-60%
Year-end

RWJ Excel Tip

To insert a column chart, select the data you want to graph, then go to the Insert tab, and select Column. Notice, we
numbers. To do this, we right-clicked on one of the columns, selected Format Data Series, went to the Fill option, an
We have a question for you: In how many years over the 1926-2020 period were the annual large-company stock re
these by hand, Excel has a function that quickly counts these values for you.

How many times did large-company stocks have a return greater than or equal to 12 percent for the period 1926 to

Number of years with a return greater than or equal to 12 percent:

RWJ Excel Tip

To count the number of times a value occurs that is greater than or less than a specified value, use the COUNTIF fun
inputs for the function are:
Range is the range of the data you want to count the occurrences, and Criteria is the criteria you wish to count, in th
percent. If you click on cell G68 and look at the formula bar, you will notice that Excel puts quotes around >=.12. The
as text. COUNTIF can also be used to count the number of occurrences of text in a data set. We should note that the
entered the 12 percent minimum return in the equation box. Generally, we would like to make this a cell reference
Excel COUNTIF for another specified number. Unfortunately, because Excel treats this input as text, it will not allow
allow you to reference a cell for this input, but it will not correctly perform the operation.)

Of course, as with any other function, the uses of COUNTIF can easily be extended. Suppose you wanted to count th
that were greater than 9 percent but less than 23 percent. We could count all the returns greater than 9 percent an
this, we could use two COUNTIF functions like this:

large-company stock returns greater than 9 percent and less than 23 percent:

Filtering Data
Of course, you may want to do more sorting and filtering of data. You may have noticed small arrows on the historic
functions we built into the worksheet.

RWJ Excel Tip

When a filter is applied to a dataset, you will see a small arrow in the header row.

To insert these sort/filter icons, we selected all the headers for our data columns, went to the Home tab, and select
a small arrow in it. This indicates that the data is sorted by the year. If you left-click on one of the arrows, it will brin
any particular column from the largest to smallest value, or smallest to largest value. If you look below the sorting o
the Number Filter option and you will see a lot of different options. For example, you can filter by greater than a 30
Excel will hide all rows in which the large-company stock return is less than 30 percent. You can also filter by multip
stock returns greater than 30 percent and long-term government bond returns greater than 10 percent, Excel will o
To remove the filter on the column, left-click on the filter arrow and then click on Clear Filter.

If the data is sorted by a particular column, the arrow will look like this:

If the data is filtered by a particular column, the arrow will look like this:

Percentile
If you want to sort the data and find a percentile ranking, Excel will also do this for you. For example, what is the 90
1926? To answer this question, we can use Rank and Percentile.
RWJ Excel Tip
To sort data and find a percentile for each point, go to the Data tab, select Data Analysis, then Rank and Percentile:

Once you click OK, Excel will bring up another box with the input information:

We used the large-company stock returns from the Historical Returns worksheet and selected the first row with the
different worksheet. If you look at the Percentile worksheet, you will find the output. So, the 90th percentile return
90.4 percentile return was 33.36 percent.)
ous asset categories for the period 1926 to 2020. Of course, with a data series this long, charts
duced a chart similar to Figure 10.5 in the textbook which graphically shows large-company

Returns: 1926 - 2020

1 4 7 0 3 6 9 2 5 8 1 4 7 0 3 6 9
9 7 1 9 7 19 7 1 9 8 1 9 8 19 8 1 9 8 1 9 9 19 9 19 9 20 0 20 0 20 0 2 0 1 20 1 20 1 2 0 1

ar-end

ert tab, and select Column. Notice, we have different markings for positive and negative
Data Series, went to the Fill option, and put a check in the "Invert if negative" box.
re the annual large-company stock returns greater than 12 percent? While you can count

to 12 percent for the period 1926 to 2020?

50

specified value, use the COUNTIF function located under More Functions, Statistical. The
 is the criteria you wish to count, in this case, returns that are greater than or equal to 12
t Excel puts quotes around >=.12. The reason is that Excel treats the mathematical operator
in a data set. We should note that there appears to be a bug with COUNTIF. Notice that we
ould like to make this a cell reference so that we could change the number in the cell and have
ats this input as text, it will not allow you to reference a cell for this input. (Actually, Excel will
operation.)

ded. Suppose you wanted to count the number of annual returns for large-company stocks
the returns greater than 9 percent and subtract all the returns greater than 23 percent. To do

28

e noticed small arrows on the historical return header rows. These are sorting and filtering

ns, went to the Home tab, and selected filter. You may notice that the arrow for the year has
click on one of the arrows, it will bring up a box that allows you to sort the entire dataset by
value. If you look below the sorting options, you are also given filtering options. Go down to
le, you can filter by greater than a 30 percent large-company stock return. When you do so,
percent. You can also filter by multiple columns. For example, if you filter by large-company
greater than 10 percent, Excel will only display the years 1985, 1989, 1991, 1995, and 1997.
on Clear Filter.

for you. For example, what is the 90th percentile return for large-company stocks since
a Analysis, then Rank and Percentile:

et and selected the first row with the header. We also selected to have the output in a
output. So, the 90th percentile return was about 33.36 percent. (Notice, to be precise, the
Point Column1 Rank Percent
8 53.99% 1 100.00%
29 52.62% 2 98.90%
10 47.67% 3 97.80%
3 43.61% 4 96.80%
33 43.36% 5 95.70%
70 37.58% 6 94.60%
2 37.49% 7 93.60%
50 37.23% 8 92.50%
20 36.44% 9 91.40%
11 33.92% 10 90.40%
72 33.36% 11 89.30%
55 32.50% 12 88.20%
88 32.39% 13 87.20%
60 31.73% 14 86.10%
25 31.71% 15 85.10%
64 31.69% 16 84.00%
30 31.56% 17 82.90%
94 31.49% 18 81.90%
13 31.12% 19 80.80%
66 30.47% 20 79.70%
78 28.68% 21 78.70%
73 28.58% 22 77.60%
36 26.89% 23 76.50%
84 26.46% 24 75.50%
18 25.90% 25 74.40%
26 24.02% 26 73.40%
42 23.98% 27 72.30%
51 23.93% 28 71.20%
71 22.96% 29 70.20%
38 22.80% 30 69.10%
58 22.56% 31 68.00%
92 21.83% 32 67.00%
57 21.55% 33 65.90%
74 21.04% 34 64.80%
17 20.34% 35 63.80%
19 19.75% 36 62.70%
47 19.00% 37 61.70%
24 18.79% 38 60.60%
61 18.67% 39 59.50%
54 18.61% 40 58.50%
95 18.40% 41 57.40%
27 18.37% 42 56.30%
63 16.61% 43 55.30%
39 16.48% 44 54.20%
87 16.00% 45 53.10%
81 15.79% 46 52.10%
85 15.06% 47 51.00%
46 14.30% 48 50.00%
89 13.69% 49 48.90%
40 12.45% 50 47.80%
34 11.96% 51 45.70%
91 11.96% 51 45.70%
1 11.62% 53 44.60%
43 11.06% 54 43.60%
79 10.88% 55 42.50%
68 10.08% 56 41.40%
67 7.62% 57 40.40%
53 6.57% 58 39.30%
31 6.56% 59 38.20%
59 6.27% 60 37.20%
22 5.71% 61 36.10%
23 5.50% 62 35.10%
82 5.49% 63 34.00%
62 5.25% 64 32.90%
80 4.91% 65 31.90%
45 3.86% 66 30.80%
86 2.11% 67 29.70%
90 1.38% 68 28.70%
69 1.32% 69 27.60%
35 0.47% 70 26.50%
14 -0.41% 71 25.50%
28 -0.99% 72 24.40%
9 -1.44% 73 23.40%
65 -3.10% 74 22.30%
93 -4.38% 75 21.20%
56 -4.92% 76 20.20%
52 -7.16% 77 19.10%
21 -8.07% 78 18.00%
7 -8.19% 79 17.00%
4 -8.42% 80 15.90%
44 -8.50% 81 14.80%
37 -8.73% 82 13.80%
75 -9.10% 83 12.70%
15 -9.78% 84 11.70%
41 -10.06% 85 10.60%
32 -10.78% 86 9.50%
16 -11.59% 87 8.50%
76 -11.89% 88 7.40%
48 -14.69% 89 6.30%
77 -22.10% 90 5.30%
5 -24.90% 91 4.20%
49 -26.47% 92 3.10%
12 -35.03% 93 2.10%
83 -37.00% 94 1.00%
6 -43.34% 95 0.00%
Historical Returns

Long-Term
Large-Company Government U.S. Treasury Consumer Price
Stocks Bonds Bills Index
1926 11.62% 7.77% 3.27% -1.49%
1927 37.49% 8.93% 3.12% -2.08%
1928 43.61% 0.10% 3.56% -0.97%
1929 -8.42% 3.42% 4.75% 0.20%
1930 -24.90% 4.66% 2.41% -6.03%
1931 -43.34% -5.31% 1.07% -9.52%
1932 -8.19% 16.84% 0.96% -10.30%
1933 53.99% -0.07% 0.30% 0.51%
1934 -1.44% 10.03% 0.16% 2.03%
1935 47.67% 4.98% 0.17% 2.99%
1936 33.92% 7.52% 0.18% 1.21%
1937 -35.03% 0.23% 0.31% 3.10%
1938 31.12% 5.53% -0.02% -2.78%
1939 -0.41% 5.94% 0.02% -0.48%
1940 -9.78% 6.09% 0.00% 0.96%
1941 -11.59% 0.93% 0.06% 9.72%
1942 20.34% 3.22% 0.27% 9.29%
1943 25.90% 2.08% 0.35% 3.16%
1944 19.75% 2.81% 0.33% 2.11%
1945 36.44% 10.73% 0.33% 2.25%
1946 -8.07% -0.10% 0.35% 18.16%
1947 5.71% -2.62% 0.50% 9.01%
1948 5.50% 3.40% 0.81% 2.71%
1949 18.79% 6.45% 1.10% -1.80%
1950 31.71% 0.06% 1.20% 5.79%
1951 24.02% -3.93% 1.49% 5.87%
1952 18.37% 1.16% 1.66% 0.88%
1953 -0.99% 3.64% 1.82% 0.62%
1954 52.62% 7.19% 0.86% -0.50%
1955 31.56% -1.29% 1.57% 0.37%
1956 6.56% -5.59% 2.46% 2.86%
1957 -10.78% 7.46% 3.14% 3.02%
1958 43.36% -6.09% 1.54% 1.76%
1959 11.96% -2.26% 2.95% 1.50%
1960 0.47% 13.78% 2.66% 1.48%
1961 26.89% 0.97% 2.13% 0.67%
1962 -8.73% 6.89% 2.73% 1.22%
1963 22.80% 1.21% 3.12% 1.65%
1964 16.48% 3.51% 3.54% 1.19%
1965 12.45% 0.71% 3.93% 1.92%
1966 -10.06% 3.65% 4.76% 3.35%
1967 23.98% -9.18% 4.21% 3.04%
1968 11.06% -0.26% 5.21% 4.72%
1969 -8.50% -5.07% 6.58% 6.11%
1970 3.86% 12.11% 6.52% 5.49%
1971 14.30% 13.23% 4.39% 3.36%
1972 19.00% 5.69% 3.84% 3.41%
1973 -14.69% -1.11% 6.93% 8.80%
1974 -26.47% 4.35% 8.00% 12.20%
1975 37.23% 9.20% 5.80% 7.01%
1976 23.93% 16.75% 5.08% 4.81%
1977 -7.16% -0.69% 5.12% 6.77%
1978 6.57% -1.18% 7.18% 9.03%
1979 18.61% -1.23% 10.38% 13.31%
1980 32.50% -3.95% 11.24% 12.40%
1981 -4.92% 1.86% 14.71% 8.94%
1982 21.55% 40.36% 10.54% 3.87%
1983 22.56% 0.65% 8.80% 3.80%
1984 6.27% 15.48% 9.85% 3.95%
1985 31.73% 30.97% 7.72% 3.77%
1986 18.67% 24.53% 6.16% 1.13%
1987 5.25% -2.71% 5.47% 4.41%
1988 16.61% 9.67% 6.35% 4.42%
1989 31.69% 18.11% 8.37% 4.65%
1990 -3.10% 6.18% 7.81% 6.11%
1991 30.47% 19.30% 5.60% 3.06%
1992 7.62% 8.05% 3.51% 2.90%
1993 10.08% 18.24% 2.90% 2.75%
1994 1.32% -7.77% 3.90% 2.67%
1995 37.58% 31.67% 5.60% 2.54%
1996 22.96% -0.93% 5.21% 3.32%
1997 33.36% 15.85% 5.26% 1.70%
1998 28.58% 13.06% 4.86% 1.61%
1999 21.04% -8.96% 4.68% 2.68%
2000 -9.10% 21.48% 5.89% 3.39%
2001 -11.89% 3.70% 3.83% 1.55%
2002 -22.10% 17.84% 1.65% 2.38%
2003 28.68% 1.45% 1.02% 1.88%
2004 10.88% 8.51% 1.20% 3.26%
2005 4.91% 7.81% 2.98% 3.42%
2006 15.79% 1.19% 4.80% 2.54%
2007 5.49% 9.88% 4.66% 4.08%
2008 -37.00% 25.87% 1.60% 0.09%
2009 26.46% -14.90% 0.10% 2.72%
2010 15.06% 10.14% 0.12% 1.50%
2011 2.11% 27.10% 0.04% 2.96%
2012 16.00% 3.43% 0.06% 1.74%
2013 32.39% -12.78% 0.02% 1.51%
2014 13.69% 24.71% 0.02% 0.76%
2015 1.38% -0.65% 0.02% 0.73%
2016 11.96% -1.75% 0.20% 2.07%
2017 21.83% 6.24% 0.80% 2.11%
2018 -4.38% -0.57% 1.81% 1.91%
2019 31.49% 12.16% 2.14% 2.29%
2020 18.40% 15.40% 0.44% 1.36%
 Chapter 10 - Section 3
Return Statistics

Calculating the average return for a large sample is a time consuming task. Fortunately, Excel has the function AVER
numbers. In the Historical Returns worksheet, we have reproduced the historical returns from Table 10.1. To calcula
return series, we can use the AVERAGE function, which gives us:

Average return
large-company stocks 12.16%
Long-term government bonds 6.03%
U.S. Treasury bills 3.34%
Inflation 2.93%

Notice the average returns are slightly different from those reported in Table 10.2 because they are from two differ

RWJ Excel Tip

The AVERAGE function is a Statistical function under More Functions on the Formula tab. The AVERAGE function is r
that we want to calculate the average for in the box. Below, you will see our inputs for calculating the large-compan
an array by selecting all the adjacent cells with the mouse. The array is reported with a colon (:) between the first c
one cell at a time by entering the cell in Number1, hitting tab, and then entering the next cell in Number2, and so on

As you can see, Excel will only allow 255 numeric arguments, but will allow many more numbers when you enter th
Suppose you want to sort the returns by the highest large-company stock return. Excel has a sort function that allow
case sensitive, number, date or time, cell color, font, and/or icon. We want to sort the returns by largest to smallest
returns, then Treasury bill returns, inflation, and finally, long-term government bond returns.

RWJ Excel Tip

To sort columns (or rows), first select the entire array of data you want to sort. In this case, we selected all five colum
headers in our selection. Next, on the Home tab, click on Sort & Filter, then Custom Sort. This brings up a box that w

Notice at the top right of the box, the box with "My data has headers" has been checked. This tells Excel to ignore th
Stocks in the first column, sorted on values in the second column, then chose largest to smallest in the third column
Level" in the upper left of the box and repeated the procedure for the other data arrays. Below, you will find a snap

Notice that 1933 had the largest large-company stock return over this period. In this example, the sorts on the othe
as we have done here uses the first sort as the first priority. In this case, Excel will sort the large-company stock retu
stock returns are the same, it will then sort by U.S. Treasury bill returns from largest to smallest. To get the data bac
smallest to largest.
tunately, Excel has the function AVERAGE that calculates the arithmetic average of a series of
cal returns from Table 10.1. To calculate the arithmetic average return for each of these

0.2 because they are from two different sources.

rmula tab. The AVERAGE function is relatively simple to use. We only need to input the cells
puts for calculating the large-company stock average return. Notice, we entered the data as
ed with a colon (:) between the first cell and the last cell. Of course, we could have entered
ng the next cell in Number2, and so on.

ny more numbers when you enter the values as an array.

rn. Excel has a sort function that allows you to sort based on text (A to Z), whether the text is
sort the returns by largest to smallest return. First, we want to sort by large-company stock
bond returns.

In this case, we selected all five columns including the year. We also included the column
stom Sort. This brings up a box that will look something like the box below:

n checked. This tells Excel to ignore the first row when it sorts. We chose large-company
argest to smallest in the third column. To add another level of sorting, we clicked on "Add
ata arrays. Below, you will find a snapshot of what we got.

n this example, the sorts on the other data series are almost irrelevant. A multi-level sort such
will sort the large-company stock returns from largest to smallest. If any of the large-company
argest to smallest. To get the data back to chronological order, sort the data by the year from
 Chapter 10 - Section 5
Risk Statistics

To examine the variability of the historical returns, again we may want to start with a graphical analysis. In the textb
large-company stocks, which we will replicate here. To do this, we must first create bins. A bin is just the limits of th
which will count the number of annual returns less than -60%. The next bin is -55%. This will count the number of re
-55%, but greater than -60%. To create this frequency distribution, we will use the FREQUENCY function.

Bin Frequency
-60% 0
-55% 0
-50% 0
-45% 0
-40% 1
-35% 2
-30% 0
-25% 1
-20% 2
-15% 0
-10% 5
-5% 8
0% 6
5% 6
10% 8
15% 9
20% 12
25% 10
30% 5
35% 11
40% 4
45% 2
50% 1
55% 2
60% 0
0
RWJ Excel Tip
The FREQUENCY function is a Statistical function found under More Functions. Because the FREQUENCY function is
step-by-step.
1) Set up the bins as we described above. The bins should be set up so that the smallest and largest bins have n
2) Select the column (or row) next to the bins. The FREQUENCY function will return one more value than the n
cell than the number of bins. In this case, we selected cell D33. This will return any results larger than your last
 3) Go to the Formula tab and insert the Frequency function, found under More Functions, Statistical.

4) The Data_array is the data you want to analyze with the frequency distribution, while the Bins_array is the a
5) DO NOT click OK when you have entered both the data array and bins array information! Before you click OK
OK. This will populate the entire array of frequency distributions that you have created.

Below, you can see the function arguments we used to create this frequency distribution.

Notice that beside the frequency distribution, we created another frequency distribution with ranges. We created th
While we could graph a frequency distribution using the bins, the legend will not be as descriptive. We will use the r
will see below.

14 Frequency Distribution of Large-Company Stock

12

10
Number of Observations

0
% to -35%

% to -20%

0% to -5%

-5% to 0%

0% to 5%

% to 10%

% to 25%
% to -55%

% to -50%

% to -45%

% to -40%

% to -30%

% to -25%

% to -15%

% to -10%

% to 15%

% to 20%

% to 30%
 4

Number
2

-40% to -35%

-25% to -20%

20% to 25%
-60% to -55%

-55% to -50%

-50% to -45%

-45% to -40%

-35% to -30%

-30% to -25%

-20% to -15%

-15% to -10%

-10% to -5%

-5% to 0%

0% to 5%

5% to 10%

10% to 15%

15% to 20%

25% to 30%
Range of Annual Returns

RWJ Excel Tip

To create this frequency distribution, we selected the data we wanted to graph (H9:H32) and went to the Insert tab
the data for the horizontal axis and input the legends as normal. Generally, when Excel draws a frequency distributi
between the columns. You can change this width by right clicking on a column and selecting Format Data Series. In t
that will allow you to change the gap between the columns.

One thing to notice is that the frequency distribution here looks less normal than Figure 10.9 in the textbook. When
easy to make the graph look like you want. In other words, it is very easy to get misled by a graph.

There is another way to graph a histogram in Excel. To graph the histogram with this method, we need to set up the
FREQUENCY function.

RWJ Excel Tip

For another way to graph a histogram, go to the Data tab, select Data Analysis, then Histogram:

Once you click OK, Excel will bring up another box for the input information:
We used the large-company stock returns from the Historical Returns worksheet and the bins we previously created
worksheet, and selected the Chart Output option. If you look at the Histogram worksheet, you will find the output, w
graph output is "raw". We could always change the look of the graph if we wanted.

Variance and Standard Deviation

The variance and standard deviation of an asset are measures of the risk of the asset. Fortunately, Excel has built-in
deviation.

Variance of large-company stock returns 0.038677

Standard deviation of large-company stock returns 19.67%

RWJ Excel Tip

The variance function (VAR) and standard deviation function (STDEV) are both located in the Statistical category of M
and select the cells or array you want Excel to calculate the variance or standard deviation for. Below, you will see h
standard deviation for large-company stock returns.
If you remember back to "sadistics", there are actually 2 different variances, and therefore standard deviations: the
deviation. The difference in the calculation is that the sample standard deviation divides by N - 1, while the populati
the population standard deviation is applicable when you have the entire population of observations, not just a sam
sample of stock returns since there were stock returns before 1926 and there will be more in the future. Should you
population variance (VARP) and population standard deviation (STDEVP). Using these functions on large-company st

Population variance of large-company stock returns 0.038270

Population standard deviation of large-company stock returns 19.56%

RWJ Excel Tip

The population variance function (VARP) and population standard deviation function (STDEVP) are both located in th
functions, insert the function and select the cells or array you want Excel to calculate the population variance or pop
we entered the returns to calculate the population variance and population standard deviation for large-company s

Notice that the sample variance and population variance are similar, as are the sample standard deviation and popu
If you have enough numbers to calculate a standard deviation or variance in practice, whether you divide by N or N
continue to use the sample standard deviation and sample variance throughout the text because they are technicall

Normal Distribution
We are almost certain that one thing everyone remembers from statistics class was looking up standard normal pro
calculate standard normal probabilities much more quickly and accurately.

Looking back on the small-company stock returns in Table 10.1, what is the probability that you will lose more than
 Specified value -15.20%
Average return 16.50%
Standard deviation 31.70%

Probability less than value 15.87%

RWJ Excel Tip

To find the standard normal probability, we use the NORMDIST function. Note, this is not the same as the NORMSD
later chapter. To find the NORMDIST function, go to More Functions, Statistical. The NORMDIST function box looks l

The inputs for the NORMDIST function are X (the value you want to test), the Mean (average), and Standard_dev (st
cumulative probability function and False for the probability mass function. Notice that NORMDIST gives the probab
look at the normal distribution, this is the probability to the left of the specified value. Since the total probability is 1
greater than the specified value, we need to take 1 minus the value given by the NORMDIST function. You can look b

Suppose we are considering an asset with the following distribution. What is the probability that the return of the a

Specified value 17.00%

Average return 13.00%
Standard deviation 35.20%

Probability greater than value 45.48%

Another question that can arise when dealing with returns is this: What is the minimum loss an investor can expect
company stock information from Table 10.2 to answer this question.
 Specified percentage 20.00%
Average return 12.10%
Standard deviation 19.50%

Minimum expected loss -4.31%

RWJ Excel Tip

To answer this question, we use the NORMINV function. The NORMINV function box looks like this:

The inputs for the NORMINV function are Probability (the probablity you specify), the Mean (average), and Standard
that the return is less than -4.31 percent is 20 percent, or about once every 5 years.

Summary Statistics
Suppose you want all of the summary statistics for a data series in one step. Excel has an analysis tool that will do th
large-company stock returns for 1926-2020.

Large-company stocks

Mean 0.121574736842
Standard Error 0.02017728602
Median 0.143
Mode 0.1196
Standard Deviation 0.196663857277
Sample Variance 0.038676672759
Kurtosis 0.106807613301
Skewness -0.40739438903
 Range 0.9733
Minimum -0.4334
Maximum 0.5399
Sum 11.5496
Count 95

RWJ Excel Tip

To calculate all of the descriptive statistics for a data series, go to the Data tab, select Data Analysis, and Descriptive

When you click OK, another box comes up with the options that are available. Below are the options we made:

We selected the large-company stock returns, including the header and checked the options for the label in the first
would report the statistics on this worksheet, and finally checked Summary statistics. As you can see, if you are inte
about some data, this option will allow you to get all of the statistics in one step.
with a graphical analysis. In the textbook, Figure 10.9 illustrates a frequency distribution for
eate bins. A bin is just the limits of the range. For example, in this case, the bin starts at -60%,
5%. This will count the number of returns less than
he FREQUENCY function.

Ranges Frequency

-60% to -55% 0
-55% to -50% 0
-50% to -45% 0
-45% to -40% 1
-40% to -35% 2
-35% to -30% 0
-30% to -25% 1
-25% to -20% 2
-20% to -15% 0
-15% to -10% 5
-10% to -5% 8
-5% to 0% 6
0% to 5% 6
5% to 10% 8
10% to 15% 9
15% to 20% 12
20% to 25% 10
25% to 30% 5
30% to 35% 11
35% to 40% 4
40% to 45% 2
45% to 50% 1
50% to 55% 2
55% to 60% 0

Because the FREQUENCY function is somewhat complicated, we will walk through the process

t the smallest and largest bins have no observations.

ill return one more value than the number of bins you have created, so select one more
turn any results larger than your last bin value.
More Functions, Statistical.

ibution, while the Bins_array is the array that shows the bins you have already created.
rray information! Before you click OK, hold down both the CTRL and SHIFT keys, then click on
have created.

stribution.

stribution with ranges. We created the ranges by concatenating the bins we created earlier.
ot be as descriptive. We will use the ranges for graphing the frequency distribution, which you

of Large-Company Stocks: 1926-2020

0% to -5%

-5% to 0%

0% to 5%

% to 10%

% to 25%

% to 40%

% to 45%

% to 55%

% to 60%
% to 15%

% to 20%

% to 30%

% to 35%

% to 50%
 20% to 25%

35% to 40%

40% to 45%

50% to 55%

55% to 60%
-10% to -5%

-5% to 0%

0% to 5%

5% to 10%

10% to 15%

15% to 20%

25% to 30%

30% to 35%

45% to 50%
nge of Annual Returns

(H9:H32) and went to the Insert tab, Column chart, 2-D, Clustered Column. We then selected
n Excel draws a frequency distribution as we have done here, there is a large amount of space
and selecting Format Data Series. In the box this brings up, there is a Series Option selection

n Figure 10.9 in the textbook. When looking at any graph, always be aware that it is relatively
misled by a graph.

h this method, we need to set up the bins as we have done, but we do not need to use the

then Histogram:
et and the bins we previously created. We selected to have the output in a different
worksheet, you will find the output, which includes the frequency distribution. Notice that the
ted.

asset. Fortunately, Excel has built-in functions that calculate both the variance and standard

ocated in the Statistical category of More Functions. To use both functions, insert the function
d deviation for. Below, you will see how we entered the returns to calculate the variance and
 d therefore standard deviations: the sample standard deviation and the population standard
n divides by N - 1, while the population standard deviation divides by N. As its name implies,
ation of observations, not just a sample. In the case of stock returns, the returns are actually a
will be more in the future. Should you ever need them, Excel has built-in functions for the
these functions on large-company stock returns, we find the following:

ction (STDEVP) are both located in the Statistical category of More Functions. To use both
ulate the population variance or population standard deviation for. Below, you will see how
ndard deviation for large-company stock returns.

sample standard deviation and population standard deviation. This should often be the case.
actice, whether you divide by N or N - 1 should make little difference. Having said this, we will
the text because they are technically the correct calculations.

was looking up standard normal probabilities on tables. Excel has built-in functions that

bability that you will lose more than a specified percentage of your money in a single year?
 this is not the same as the NORMSDIST (notice the "S" in the middle) that will be used in a
The NORMDIST function box looks like this:

ean (average), and Standard_dev (standard deviation). The Cumulative value uses True for the
tice that NORMDIST gives the probability less than the specified value. In other words, if you
value. Since the total probability is 1 (100%), if we want the probability that a return is
e NORMDIST function. You can look below for an example.

e probability that the return of the asset is greater than a specified value?

minimum loss an investor can expect a specified percentage of the time? We can use the large-
n box looks like this:

y), the Mean (average), and Standard_dev (standard deviation). In this case, the probablity
ears.

el has an analysis tool that will do this for you. Below, you can see the descriptive statistics for
select Data Analysis, and Descriptive Statistics:

elow are the options we made:

d the options for the label in the first row. We next selected the output range so that Excel
tistics. As you can see, if you are interested in all or most of the basic descriptive statistics
.
 Bin Frequency
-60% 0
-55% 0
-50% 0
-45% 0
-40% 1
-35% 2
-30% 0
-25% 2
-20% 1
-15% 0
-10% 6 Histogram
-5% 7 10
0% 5 9
5% 5
8
10% 7
7
15% 7
6
20% 9
25% 9 Frequency 5
30% 4 4
35% 9 3
40% 4 2
45% 1 1
50% 2 0
55% 2 .6 .5 .4 .3 .2 .1 0 1 2 3 4 5
-0 -0 -0 -0 -0 -0 0. 0. 0. 0. 0.
60% 0
More 0 Bin
ogram

Frequency

1 2 3 4 5 6
0. 0. 0. 0. 0. 0.
 Chapter 10 - Section 6
More on Average Returns

We used the AVERAGE function to calculate the arithmetic average of a series of returns. Excel also has a function th
function is slightly more difficult to use for returns since it will not work if any value in the series is less than or equa
first, find the geometric return, and then subtract 1 from this answer. At the bottom of this worksheet, we have add
use Excel's geometric mean function:

large-company stocks 1.1029

Long-term government bonds 1.0560
U.S. Treasury bills 1.0329
Inflation 1.0286

RWJ Excel Tip

The GEOMEAN function is under More Functions, Statistical on the Formula tab. The GEOMEAN function requires th
geometric mean for in the box. Below, you will see our inputs for calculating the gemoetric return for 1 plus the larg
as an array by selecting all the adjacent cells with the mouse. The array is reported with a colon (:) between the firs
one cell at a time by entering the cell in Number1, hitting tab, and then entering the next cell in Number2, and so on

Now we can subtract one to find the geometric return for each asset class:
 Geometric
Return
large-company stocks 10.29%
Long-term government bonds 5.60%
U.S. Treasury bills 3.29%
Inflation 2.86%

1 (One) plus the annual return

Long-Term
Large-Company Government U.S. Treasury Consumer Price
Stocks Bonds Bills Index
1926 1.1162 1.0777 1.0327 0.9851
1927 1.3749 1.0893 1.0312 0.9792
1928 1.4361 1.0010 1.0356 0.9903
1929 0.9158 1.0342 1.0475 1.0020
1930 0.7510 1.0466 1.0241 0.9397
1931 0.5666 0.9469 1.0107 0.9048
1932 0.9181 1.1684 1.0096 0.8970
1933 1.5399 0.9993 1.0030 1.0051
1934 0.9856 1.1003 1.0016 1.0203
1935 1.4767 1.0498 1.0017 1.0299
1936 1.3392 1.0752 1.0018 1.0121
1937 0.6497 1.0023 1.0031 1.0310
1938 1.3112 1.0553 0.9998 0.9722
1939 0.9959 1.0594 1.0002 0.9952
1940 0.9022 1.0609 1.0000 1.0096
1941 0.8841 1.0093 1.0006 1.0972
1942 1.2034 1.0322 1.0027 1.0929
1943 1.2590 1.0208 1.0035 1.0316
1944 1.1975 1.0281 1.0033 1.0211
1945 1.3644 1.1073 1.0033 1.0225
1946 0.9193 0.9990 1.0035 1.1816
1947 1.0571 0.9738 1.0050 1.0901
1948 1.0550 1.0340 1.0081 1.0271
1949 1.1879 1.0645 1.0110 0.9820
1950 1.3171 1.0006 1.0120 1.0579
1951 1.2402 0.9607 1.0149 1.0587
1952 1.1837 1.0116 1.0166 1.0088
1953 0.9901 1.0364 1.0182 1.0062
1954 1.5262 1.0719 1.0086 0.9950
1955 1.3156 0.9871 1.0157 1.0037
1956 1.0656 0.9441 1.0246 1.0286
1957 0.8922 1.0746 1.0314 1.0302
1958 1.4336 0.9391 1.0154 1.0176
1959 1.1196 0.9774 1.0295 1.0150
1960 1.0047 1.1378 1.0266 1.0148
1961 1.2689 1.0097 1.0213 1.0067
1962 0.9127 1.0689 1.0273 1.0122
1963 1.2280 1.0121 1.0312 1.0165
1964 1.1648 1.0351 1.0354 1.0119
1965 1.1245 1.0071 1.0393 1.0192
1966 0.8994 1.0365 1.0476 1.0335
1967 1.2398 0.9082 1.0421 1.0304
1968 1.1106 0.9974 1.0521 1.0472
1969 0.9150 0.9493 1.0658 1.0611
1970 1.0386 1.1211 1.0652 1.0549
1971 1.1430 1.1323 1.0439 1.0336
1972 1.1900 1.0569 1.0384 1.0341
1973 0.8531 0.9889 1.0693 1.0880
1974 0.7353 1.0435 1.0800 1.1220
1975 1.3723 1.0920 1.0580 1.0701
1976 1.2393 1.1675 1.0508 1.0481
1977 0.9284 0.9931 1.0512 1.0677
1978 1.0657 0.9882 1.0718 1.0903
1979 1.1861 0.9877 1.1038 1.1331
1980 1.3250 0.9605 1.1124 1.1240
1981 0.9508 1.0186 1.1471 1.0894
1982 1.2155 1.4036 1.1054 1.0387
1983 1.2256 1.0065 1.0880 1.0380
1984 1.0627 1.1548 1.0985 1.0395
1985 1.3173 1.3097 1.0772 1.0377
1986 1.1867 1.2453 1.0616 1.0113
1987 1.0525 0.9729 1.0547 1.0441
1988 1.1661 1.0967 1.0635 1.0442
1989 1.3169 1.1811 1.0837 1.0465
1990 0.9690 1.0618 1.0781 1.0611
1991 1.3047 1.1930 1.0560 1.0306
1992 1.0762 1.0805 1.0351 1.0290
1993 1.1008 1.1824 1.0290 1.0275
1994 1.0132 0.9223 1.0390 1.0267
1995 1.3758 1.3167 1.0560 1.0254
1996 1.2296 0.9907 1.0521 1.0332
1997 1.3336 1.1585 1.0526 1.0170
1998 1.2858 1.1306 1.0486 1.0161
1999 1.2104 0.9104 1.0468 1.0268
2000 0.9090 1.2148 1.0589 1.0339
2001 0.8811 1.0370 1.0383 1.0155
2002 0.7790 1.1784 1.0165 1.0238
2003 1.2868 1.0145 1.0102 1.0188
2004 1.1088 1.0851 1.0120 1.0326
2005 1.0491 1.0781 1.0298 1.0342
2006 1.1579 1.0119 1.0480 1.0254
2007 1.0549 1.0988 1.0466 1.0408
2008 0.6300 1.2587 1.0160 1.0009
2009 1.2646 0.8510 1.0010 1.0272
2010 1.1506 1.1014 1.0012 1.0150
2011 1.0211 1.2710 1.0004 1.0296
2012 1.1600 1.0343 1.0006 1.0174
2013 1.3239 0.8722 1.0002 1.0151
2014 1.1369 1.2471 1.0002 1.0076
2015 1.0138 0.9935 1.0002 1.0073
2016 1.1196 0.9825 1.0020 1.0207
2017 1.2183 1.0624 1.0080 1.0211
2018 0.9562 0.9943 1.0181 1.0191
2019 1.3149 1.1216 1.0214 1.0229
2020 1.1840 1.1540 1.0044 1.0136
of returns. Excel also has a function that calculates the geometric average, however the
value in the series is less than or equal to zero. To adjust for this, we can add 1 to each return
ottom of this worksheet, we have added 1 to the annual return for each asset class. Now we

b. The GEOMEAN function requires the input for the cells that we want to calculate the
he gemoetric return for 1 plus the large-company stock returns. Notice, we entered the data
orted with a colon (:) between the first cell and the last cell. Of course, we could have entered
ng the next cell in Number2, and so on.
 Chapter 10
Pivot Tables

We have already shown how to analyze data using Excel functions such as AVERAGE and STDEV. Since we have a sm
to analyze historic annual market returns for the period we examined in the text. However, we feel that pivot tables
for large data sets, that we wanted to introduce you to pivot tables. On the Historic Data 2 worksheet, you will find
10.1 in the textbook. Notice, we have the year listed in the first column, the asset class in the second column, and th
to group things that are alike. In this case, we will have the pivot table group the returns by the asset class in the sec
categorizations in the columns, such as sales with region and quarter, we could create a pivot table that totaled sale

Since we have a small data set, our pivot table will be basic. Below, we describe how we constructed the pivot table

RWJ Excel Tip

To create a pivot table, we went to the data we wanted to use to create a pivot table and selected a cell in the data
the Insert tab, then selected Pivot Table. This brought up a box that looks like this:

Excel automatically selects all of the data in the rows and columns of the data array. We chose to output the data in
worksheet that looks like this:
To get Excel to display the returns by asset class, we selected Asset and Return in the Pivot Table File List. As you can
for each asset class are the sum of the returns over this period. While this is useful for numbers such as sales, it is le
Returns header at the top of the column, select Summarize Values By, and Average. The result is the average of each
More Options and calculate other statistics such as variance and standard deviation.

Excel will also graph a chart from pivot table data. We went to the Insert tab and clicked PivotChart. This brought up
On the new worksheet, we selected Asset and Return in the Pivot Table File List. The pivot table and graph were aut
sum of the returns, so we changed the calculation to the average using the Summarize Data By option like we explai

Pivot tables are a powerful way to categorize and summarize data. There are many more options for pivot tables an
 RAGE and STDEV. Since we have a small data set, these functions are probably the easiest way
xt. However, we feel that pivot tables are such an important part of data analysis, especially
toric Data 2 worksheet, you will find the annual returns for the four asset classes from Table
set class in the second column, and the return in the third column. Pivot tables are designed
he returns by the asset class in the second column. Suppose we had data with several
d create a pivot table that totaled sales by region and quarter.

e how we constructed the pivot table on the next worksheet.

t table and selected a cell in the data (any cell in the data array will work). Next, we went to
his:

array. We chose to output the data in a new worksheet and clicked OK. This brings up a new
 in the Pivot Table File List. As you can see on the Pivot Table worksheet, the values calculated
eful for numbers such as sales, it is less useful for returns. You can right-click on the Sum of
rage. The result is the average of each asset's returns over this period. You can also choose
ation.

nd clicked PivotChart. This brought up a box that looks like this:

 t. The pivot table and graph were automatically inserted. As before, the calculation was the
mmarize Data By option like we explained above.

many more options for pivot tables and we encourage you to explore them.
Year Asset Return
1926 CPI -1.49%
1927 CPI -2.08%
1928 CPI -0.97%
1929 CPI 0.20%
1930 CPI -6.03%
1931 CPI -9.52%
1932 CPI -10.30%
1933 CPI 0.51%
1934 CPI 2.03%
1935 CPI 2.99%
1936 CPI 1.21%
1937 CPI 3.10%
1938 CPI -2.78%
1939 CPI -0.48%
1940 CPI 0.96%
1941 CPI 9.72%
1942 CPI 9.29%
1943 CPI 3.16%
1944 CPI 2.11%
1945 CPI 2.25%
1946 CPI 18.16%
1947 CPI 9.01%
1948 CPI 2.71%
1949 CPI -1.80%
1950 CPI 5.79%
1951 CPI 5.87%
1952 CPI 0.88%
1953 CPI 0.62%
1954 CPI -0.50%
1955 CPI 0.37%
1956 CPI 2.86%
1957 CPI 3.02%
1958 CPI 1.76%
1959 CPI 1.50%
1960 CPI 1.48%
1961 CPI 0.67%
1962 CPI 1.22%
1963 CPI 1.65%
1964 CPI 1.19%
1965 CPI 1.92%
1966 CPI 3.35%
1967 CPI 3.04%
1968 CPI 4.72%
1969 CPI 6.11%
1970 CPI 5.49%
1971 CPI 3.36%
1972 CPI 3.41%
1973 CPI 8.80%
1974 CPI 12.20%
1975 CPI 7.01%
1976 CPI 4.81%
1977 CPI 6.77%
1978 CPI 9.03%
1979 CPI 13.31%
1980 CPI 12.40%
1981 CPI 8.94%
1982 CPI 3.87%
1983 CPI 3.80%
1984 CPI 3.95%
1985 CPI 3.77%
1986 CPI 1.13%
1987 CPI 4.41%
1988 CPI 4.42%
1989 CPI 4.65%
1990 CPI 6.11%
1991 CPI 3.06%
1992 CPI 2.90%
1993 CPI 2.75%
1994 CPI 2.67%
1995 CPI 2.54%
1996 CPI 3.32%
1997 CPI 1.70%
1998 CPI 1.61%
1999 CPI 2.68%
2000 CPI 3.39%
2001 CPI 1.55%
2002 CPI 2.38%
2003 CPI 1.88%
2004 CPI 3.26%
2005 CPI 3.42%
2006 CPI 2.54%
2007 CPI 4.08%
2008 CPI 0.09%
2009 CPI 2.72%
2010 CPI 1.50%
2011 CPI 2.96%
2012 CPI 1.74%
2013 CPI 1.51%
2014 CPI 0.76%
2015 CPI 0.73%
2016 CPI 2.07%
2017 CPI 2.11%
2018 CPI 1.91%
2019 CPI 2.29%
2020 CPI 1.36%
1926 Large-company stocks 11.62%
1927 Large-company stocks 37.49%
1928 Large-company stocks 43.61%
1929 Large-company stocks -8.42%
1930 Large-company stocks -24.90%
1931 Large-company stocks -43.34%
1932 Large-company stocks -8.19%
1933 Large-company stocks 53.99%
1934 Large-company stocks -1.44%
1935 Large-company stocks 47.67%
1936 Large-company stocks 33.92%
1937 Large-company stocks -35.03%
1938 Large-company stocks 31.12%
1939 Large-company stocks -0.41%
1940 Large-company stocks -9.78%
1941 Large-company stocks -11.59%
1942 Large-company stocks 20.34%
1943 Large-company stocks 25.90%
1944 Large-company stocks 19.75%
1945 Large-company stocks 36.44%
1946 Large-company stocks -8.07%
1947 Large-company stocks 5.71%
1948 Large-company stocks 5.50%
1949 Large-company stocks 18.79%
1950 Large-company stocks 31.71%
1951 Large-company stocks 24.02%
1952 Large-company stocks 18.37%
1953 Large-company stocks -0.99%
1954 Large-company stocks 52.62%
1955 Large-company stocks 31.56%
1956 Large-company stocks 6.56%
1957 Large-company stocks -10.78%
1958 Large-company stocks 43.36%
1959 Large-company stocks 11.96%
1960 Large-company stocks 0.47%
1961 Large-company stocks 26.89%
1962 Large-company stocks -8.73%
1963 Large-company stocks 22.80%
1964 Large-company stocks 16.48%
1965 Large-company stocks 12.45%
1966 Large-company stocks -10.06%
1967 Large-company stocks 23.98%
1968 Large-company stocks 11.06%
1969 Large-company stocks -8.50%
1970 Large-company stocks 3.86%
1971 Large-company stocks 14.30%
1972 Large-company stocks 19.00%
1973 Large-company stocks -14.69%
1974 Large-company stocks -26.47%
1975 Large-company stocks 37.23%
1976 Large-company stocks 23.93%
1977 Large-company stocks -7.16%
1978 Large-company stocks 6.57%
1979 Large-company stocks 18.61%
1980 Large-company stocks 32.50%
1981 Large-company stocks -4.92%
1982 Large-company stocks 21.55%
1983 Large-company stocks 22.56%
1984 Large-company stocks 6.27%
1985 Large-company stocks 31.73%
1986 Large-company stocks 18.67%
1987 Large-company stocks 5.25%
1988 Large-company stocks 16.61%
1989 Large-company stocks 31.69%
1990 Large-company stocks -3.10%
1991 Large-company stocks 30.47%
1992 Large-company stocks 7.62%
1993 Large-company stocks 10.08%
1994 Large-company stocks 1.32%
1995 Large-company stocks 37.58%
1996 Large-company stocks 22.96%
1997 Large-company stocks 33.36%
1998 Large-company stocks 28.58%
1999 Large-company stocks 21.04%
2000 Large-company stocks -9.10%
2001 Large-company stocks -11.89%
2002 Large-company stocks -22.10%
2003 Large-company stocks 28.68%
2004 Large-company stocks 10.88%
2005 Large-company stocks 4.91%
2006 Large-company stocks 15.79%
2007 Large-company stocks 5.49%
2008 Large-company stocks -37.00%
2009 Large-company stocks 26.46%
2010 Large-company stocks 15.06%
2011 Large-company stocks 2.11%
2012 Large-company stocks 16.00%
2013 Large-company stocks 32.39%
2014 Large-company stocks 13.69%
2015 Large-company stocks 1.38%
2016 Large-company stocks 11.96%
2017 Large-company stocks 21.83%
2018 Large-company stocks -4.38%
2019 Large-company stocks 31.49%
2020 Large-company stocks 18.40%
1926 Long-term gov't bonds 7.77%
1927 Long-term gov't bonds 8.93%
1928 Long-term gov't bonds 0.10%
1929 Long-term gov't bonds 3.42%
1930 Long-term gov't bonds 4.66%
1931 Long-term gov't bonds -5.31%
1932 Long-term gov't bonds 16.84%
1933 Long-term gov't bonds -0.07%
1934 Long-term gov't bonds 10.03%
1935 Long-term gov't bonds 4.98%
1936 Long-term gov't bonds 7.52%
1937 Long-term gov't bonds 0.23%
1938 Long-term gov't bonds 5.53%
1939 Long-term gov't bonds 5.94%
1940 Long-term gov't bonds 6.09%
1941 Long-term gov't bonds 0.93%
1942 Long-term gov't bonds 3.22%
1943 Long-term gov't bonds 2.08%
1944 Long-term gov't bonds 2.81%
1945 Long-term gov't bonds 10.73%
1946 Long-term gov't bonds -0.10%
1947 Long-term gov't bonds -2.62%
1948 Long-term gov't bonds 3.40%
1949 Long-term gov't bonds 6.45%
1950 Long-term gov't bonds 0.06%
1951 Long-term gov't bonds -3.93%
1952 Long-term gov't bonds 1.16%
1953 Long-term gov't bonds 3.64%
1954 Long-term gov't bonds 7.19%
1955 Long-term gov't bonds -1.29%
1956 Long-term gov't bonds -5.59%
1957 Long-term gov't bonds 7.46%
1958 Long-term gov't bonds -6.09%
1959 Long-term gov't bonds -2.26%
1960 Long-term gov't bonds 13.78%
1961 Long-term gov't bonds 0.97%
1962 Long-term gov't bonds 6.89%
1963 Long-term gov't bonds 1.21%
1964 Long-term gov't bonds 3.51%
1965 Long-term gov't bonds 0.71%
1966 Long-term gov't bonds 3.65%
1967 Long-term gov't bonds -9.18%
1968 Long-term gov't bonds -0.26%
1969 Long-term gov't bonds -5.07%
1970 Long-term gov't bonds 12.11%
1971 Long-term gov't bonds 13.23%
1972 Long-term gov't bonds 5.69%
1973 Long-term gov't bonds -1.11%
1974 Long-term gov't bonds 4.35%
1975 Long-term gov't bonds 9.20%
1976 Long-term gov't bonds 16.75%
1977 Long-term gov't bonds -0.69%
1978 Long-term gov't bonds -1.18%
1979 Long-term gov't bonds -1.23%
1980 Long-term gov't bonds -3.95%
1981 Long-term gov't bonds 1.86%
1982 Long-term gov't bonds 40.36%
1983 Long-term gov't bonds 0.65%
1984 Long-term gov't bonds 15.48%
1985 Long-term gov't bonds 30.97%
1986 Long-term gov't bonds 24.53%
1987 Long-term gov't bonds -2.71%
1988 Long-term gov't bonds 9.67%
1989 Long-term gov't bonds 18.11%
1990 Long-term gov't bonds 6.18%
1991 Long-term gov't bonds 19.30%
1992 Long-term gov't bonds 8.05%
1993 Long-term gov't bonds 18.24%
1994 Long-term gov't bonds -7.77%
1995 Long-term gov't bonds 31.67%
1996 Long-term gov't bonds -0.93%
1997 Long-term gov't bonds 15.85%
1998 Long-term gov't bonds 13.06%
1999 Long-term gov't bonds -8.96%
2000 Long-term gov't bonds 21.48%
2001 Long-term gov't bonds 3.70%
2002 Long-term gov't bonds 17.84%
2003 Long-term gov't bonds 1.45%
2004 Long-term gov't bonds 8.51%
2005 Long-term gov't bonds 7.81%
2006 Long-term gov't bonds 1.19%
2007 Long-term gov't bonds 9.88%
2008 Long-term gov't bonds 25.87%
2009 Long-term gov't bonds -14.90%
2010 Long-term gov't bonds 10.14%
2011 Long-term gov't bonds 27.10%
2012 Long-term gov't bonds 3.43%
2013 Long-term gov't bonds -12.78%
2014 Long-term gov't bonds 24.71%
2015 Long-term gov't bonds -0.65%
2016 Long-term gov't bonds -1.75%
2017 Long-term gov't bonds 6.24%
2018 Long-term gov't bonds -0.57%
2019 Long-term gov't bonds 12.16%
2020 Long-term gov't bonds 15.40%
1926 Treasury bills 3.27%
1927 Treasury bills 3.12%
1928 Treasury bills 3.56%
1929 Treasury bills 4.75%
1930 Treasury bills 2.41%
1931 Treasury bills 1.07%
1932 Treasury bills 0.96%
1933 Treasury bills 0.30%
1934 Treasury bills 0.16%
1935 Treasury bills 0.17%
1936 Treasury bills 0.18%
1937 Treasury bills 0.31%
1938 Treasury bills -0.02%
1939 Treasury bills 0.02%
1940 Treasury bills 0.00%
1941 Treasury bills 0.06%
1942 Treasury bills 0.27%
1943 Treasury bills 0.35%
1944 Treasury bills 0.33%
1945 Treasury bills 0.33%
1946 Treasury bills 0.35%
1947 Treasury bills 0.50%
1948 Treasury bills 0.81%
1949 Treasury bills 1.10%
1950 Treasury bills 1.20%
1951 Treasury bills 1.49%
1952 Treasury bills 1.66%
1953 Treasury bills 1.82%
1954 Treasury bills 0.86%
1955 Treasury bills 1.57%
1956 Treasury bills 2.46%
1957 Treasury bills 3.14%
1958 Treasury bills 1.54%
1959 Treasury bills 2.95%
1960 Treasury bills 2.66%
1961 Treasury bills 2.13%
1962 Treasury bills 2.73%
1963 Treasury bills 3.12%
1964 Treasury bills 3.54%
1965 Treasury bills 3.93%
1966 Treasury bills 4.76%
1967 Treasury bills 4.21%
1968 Treasury bills 5.21%
1969 Treasury bills 6.58%
1970 Treasury bills 6.52%
1971 Treasury bills 4.39%
1972 Treasury bills 3.84%
1973 Treasury bills 6.93%
1974 Treasury bills 8.00%
1975 Treasury bills 5.80%
1976 Treasury bills 5.08%
1977 Treasury bills 5.12%
1978 Treasury bills 7.18%
1979 Treasury bills 10.38%
1980 Treasury bills 11.24%
1981 Treasury bills 14.71%
1982 Treasury bills 10.54%
1983 Treasury bills 8.80%
1984 Treasury bills 9.85%
1985 Treasury bills 7.72%
1986 Treasury bills 6.16%
1987 Treasury bills 5.47%
1988 Treasury bills 6.35%
1989 Treasury bills 8.37%
1990 Treasury bills 7.81%
1991 Treasury bills 5.60%
1992 Treasury bills 3.51%
1993 Treasury bills 2.90%
1994 Treasury bills 3.90%
1995 Treasury bills 5.60%
1996 Treasury bills 5.21%
1997 Treasury bills 5.26%
1998 Treasury bills 4.86%
1999 Treasury bills 4.68%
2000 Treasury bills 5.89%
2001 Treasury bills 3.83%
2002 Treasury bills 1.65%
2003 Treasury bills 1.02%
2004 Treasury bills 1.20%
2005 Treasury bills 2.98%
2006 Treasury bills 4.80%
2007 Treasury bills 4.66%
2008 Treasury bills 1.60%
2009 Treasury bills 0.10%
2010 Treasury bills 0.12%
2011 Treasury bills 0.04%
2012 Treasury bills 0.06%
2013 Treasury bills 0.02%
2014 Treasury bills 0.02%
2015 Treasury bills 0.02%
2016 Treasury bills 0.20%
2017 Treasury bills 0.80%
2018 Treasury bills 1.81%
2019 Treasury bills 2.14%
2020 Treasury bills 0.44%
Asset Average of Return
CPI 2.93%
Large-company stocks 12.16%
Long-term gov't bonds 6.03%
Treasury bills 3.34%
Total Result 6.12%
Asset Average of Return
CPI 2.93%
Large-company stocks 12.16% Total
Long-term gov't bonds 6.03% 0.14
Treasury bills 3.34% 0.12
Total Result 6.12% 0.1
0.08
0.06
0.04
0.02
0
I ks ds s t
CP oc i ll ul
s t bon yb Re
s
t r l
ny v' su ta
pa go ea To
om rm Tr
e -c - te
rg ng
La Lo
 Total

Average of Return

s s t
nd i ll s ul
ryb Re
su l
ea ta
Tr To
 Chapter 10 - Master It!

As we have seen, over the 1926-2020 period, small-company stocks had the highest return and the highest risk
lowest risk. While we certainly hope you have a 95-year holding period, it is likely your investment will be for f
shorter investment period is by using rolling returns and standard deviations. Suppose you have a series of ann
average return. You would calculate the first rolling average at Year 3 using the returns for the first 3 years. Th
returns from Years 2, 3, and 4.

a. Using the annual returns for large-company stocks and Treasury bills, calculate both the 5- and 10-year rolling

b. Over how many 5-year periods did Treasury bills outperform large-company stocks? How many 10-year period

c. Over how many 5-year periods did Treasury bills have a larger standard deviation than large-company stocks?

d. Graph the rolling 5-year and 10-year average returns for large-company stocks and Treasury bills.

e. What conclusions do you draw from the above results?

 he highest return and the highest risk, while U.S. Treasury bills had the lowest return and the
is likely your investment will be for fewer years. One way risk and return is examined over a
ons. Suppose you have a series of annual returns and you want to calculate a 3-year rolling
ng the returns for the first 3 years. The next rolling average would be calculated using the

culate both the 5- and 10-year rolling average return and standard deviation.

any stocks? How many 10-year periods?

eviation than large-company stocks? Over how many 10-year periods?

tocks and Treasury bills.

 Master it! Solution

large-company Stocks

5-Year 10-Year
5-Year Standard 10-Year Standard
a. Average Deviation Average Deviation
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
 Treasury Bills 5- Year Period

5-Year 10-Year
5-Year Standard 10-Year Standard T-Bill had a
Average Deviation Average Deviation higher return
Total:
5- Year Period 10-Year Period

T-Bills had a T-Bills had a

higher standard T-Bill had a higher standard
deviation higher return deviation