Stocks versus T-bills. What is the relationship between returns from buyingTreasury

Chapter 0, Problem 4.22

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Stocks versus T-bills. What is the relationship between returns from buyingTreasury bills and returns from buying common stocks? To buy a Treasury bill is tomake a short-term loan to the U.S. government. This is much less risky thanbuying stock in a company, so (on the average) the returns on Treasury bills arelower than the return on stocks. Figure 4.7 plots the annual returns on stocks forthe years 1950 to 2003 against the returns on Treasury bills for the same years.(a) The best year for stocks during this period was 1954. The worst year was1974. About what were the returns on stocks in those two years?(b) Treasury bills are a measure of the general level of interest rates. The yearsaround 1980 saw very high interest rates. Treasury bill returns peaked in 1981.About what was the percent return that year?(c) Some people say that high Treasury bill returns tend to go with low returns onstocks. Does such a pattern appear clearly in Figure 4.7? Does the plot have anyclear pattern?