Average historical return on common stocks

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1. Use duration to explain the “negative convexity” exhibited by callable bonds. Which would have a longer Macaulay duration—a growth stock with low dividend yield, or a mature stock with a high dividend yield?

2. One estimate of the market risk premium is provided by the difference between the average historical return on common stocks and the risk-free interest rate

3. Describe the behavior of credit spreads over the business cycle. if you thought the economy was going to strengthen unexpectedly, how would you alter the composition of your bond portfolio to "bet" on your forecast?

Reference no: EM132053000

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