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State of South Carolina

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Submitted By stephsnow
Words 1241
Pages 5
Stephanie Snowden
FIN 322
Assignment 1
The State of South Carolina 1. The state of South Carolina is planning to invest state pension money in the stock market as a result of the efforts of city Treasurer Richard Eckstrom who believed that instead of investing the state pension funds exclusively in government and corporate bonds, diversification into equity securities would substantially increase return on investment without substantially increasing risk.

2. Investing in the stock market involves more risk than investing in bonds, and stocks are not guaranteed to return anything to the investor. However, investing in the stock market also presents the possibility for higher returns, the benefit of partial ownership in a company and the unlimited potential of a rising stock price, as well as the opportunity of further diversification of the portfolio.

3. The differences in return between stocks and bonds are that stocks have a higher return than bonds as shown with the average returns. Bonds have an average return ranging from about 3% to about 6% while stocks show an average return of about 13%. The risk in investments between stocks and bonds are shown in the standard deviation. While bonds have lower returns they also are less risky and less volatile than stocks. The volatility of bonds range from about 4% to about 9% while the volatility of stocks is about 20%.

4. Dow 30 Stock | Mean Return | Standard Deviation | ALUMINUM COMPANY AMER | 0.970588 | 6.721026 | ALLIED SIGNAL INC | 2.018627 | 6.450815 | AMERICAN EXPRESS CO | 1.831373 | 7.745903 | AT&T | 1.016667 | 6.36953 | BETHLEHEM STEEL CORP | 0.241176471 | 10.77440452 | BOEING CO | 1.16666667 | 6.62016621 | CHEVRON CORP | 1.332353 | 4.570247 | COCA COLA CO | 2.45 | 5.84709 | DU PONT | 1.732352941 | 6.147432238 | EASTMAN KODAK CO | 1.2627451 | 6.2074041 |

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