Introduction to Corporate Finance

Ross et al.: Fundamentals

of Corporate Finance, Sixth

Edition, Alternate Edition

V. Risk and Return 12. Some Lessons from

Capital Market History

© The McGraw−Hill^417

Companies, 2002

how predictably the Treasury bills (Figure 12.7) behaved compared to the small stocks

(Figure 12.6).

The returns shown in these bar graphs are sometimes very large. Looking at the

graphs, for example, we see that the largest single-year return is a remarkable 142.87

percent for the small-cap stocks in 1933. In the same year, the large-company stocks

“only” returned 52.94 percent. In contrast, the largest Treasury bill return was 15.21

388 PART FIVE Risk and Return

FIGURE 12.4

$0

1925 1935 1945 1955 1965 1975 1985 1995 2000

Treasury Bills

Long-Term

Government Bonds

Inflation

Large

Company

Stocks

Small Company Stocks

$9.71

$16.56

$48.86

$2,586.52

$6,402.23

Year-End

$1

$10

$100

Index

$1,000

$10,000

Source: © Stocks, Bonds, Bills, and Inflation 2001 Yearbook™, Ibbotson Associates, Inc., Chicago (annually updates work by Roger G.

Ibbotson and Rex A. Sinquefield). All rights reserved.

A $1 Investment in Different Types of Portfolios: 1926–2000 (Year-End 1925 $1)