simplicity, assume the entire 8% coupon is paid at the end of the year rather than every six months. 6. Using the historical risk premiums as your guide, what would be your estimate of the expected annual HPR on the S&P 500 stock portfolio if the current risk-free interest rate is 6%? 7. Compute the means and standard deviations of the annual HPR of large stocks and long- term Treasury bonds using only the last 30 years of data in Table 5.2, 1970-1999. How do these statistics compare with those computed from the data for the period 1926-1941? Which do you think are the most relevant statistics to use for projecting into the future? 8. During a period of severe inflation, a bond offered a nominal HPR of 80% per year. The inflation rate was 70% per year. a. What was the real HPR on the bond over the year? b. Compare this real HPR to the approximation r R i. 9. Suppose that the inflation rate is expected to be 3% in the near future. Using the his- torical data provided in this chapter, what would be your predictions for: a. The T-bill rate? b. The expected rate of return on large stocks? c. The risk premium on the stock market? 10. An economy is making a rapid recovery from steep recession, and businesses foresee a need for large amounts of capital investment. Why would this development affect real interest rates? 11. Given $100,000 to invest, what is the expected risk premium in dollars of investing in equities versus risk-free T-bills (U.S. Treasury bills) based on the