Long-term government bonds
-45 -40 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45 50 55 Annual Percentage Return
Source: Professor Aswath Damodaran’s website, /~adamordar/New_Home_Page/
13.2%
Long-term corporate bonds
6.1
Long-term government bonds
5.7
Short-term government bills
3.8
Consumer price index
3.2
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Continued
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Irwin/McGraw-Hill
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 5
Financial Instruments and Markets
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5-2
TABLE 5-1 Rate of Return on Selected Securities, 1926 - 1998
Security
Return*
Large company common stocks
1999 YearbookTM, Ibbotson Associates,
Chicago, p.33 (annually updates work by Roger G. Ibbotson and Rex A, Sinquefield. All rights reserved.
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Continued
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Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
5-6
FIGURE 5-2 (Concluded) Distribution of Annual Returns on Stocks and Bonds, 1926 -1998
1.50
1.32
1.19
Price index
1.00
-40 -30
-20
-10
0
10
20
30
40
tA
tE Trading days
Announcement Execution
date
date
Source: Michael Bradley, “Interfirm Tender Offers and the Market for Corporate Control,” Journal of Business 53, no.4 (1980).
Irwin/McGraw-Hill
Copyright © 2001 by The McGraw-Hill Companies, Inc. All Distribution of Annual Returns on Stocks and Bonds,1926 -1998
Common Stocks
-45 -40 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45 50 55 Annual Percentage Return
Source: Professor Aswath Damodaran’s website, /~adamordar/New_Home_Page/
5-3
TABLE 5-1 (Concluded) Footnote
*Arithmetic mean of annual returns ignoring taxes and assuming reinvestment of all interest and dividend income. Source: SBBI, Stocks, Bonds, Bills and Inflation,
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
5-4
FIGURE 5-1 If You Had Only Invested a Dollar in 1926; Performance of U.S. Capital Markets, 1926 - 1998
Irwin/McGraw-Hill
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
5-7
FIGURE 5-3 Time Series of the Mean Price Index of the Shares of 161 Target Firms Involved in Successful Tender Offers
$10,000 log scale $1,000 $100 $10 $1
Long-term government bonds
$2,349
Stocks $34 $9
Inf lation
$0 1926
1936
1946
1956
1966
Year-End
1976
1986
1996
Sources: Professor Aswath Damodaran’s website, /~adamodar/ New_Home_Page/ for stocks and long-term government bonds; Federal Reserve Bank of Minneapolis, /economy/calc/cpihome.html for inflation.