Using the spreadsheet information below A. Determine how much a passive investor

Question

Using the spreadsheet information below

A. Determine how much a passive investor would have on December 31, 2011 if she invested $10,000 on January 1, 2002 in the passive portfolio

B. Determine how much a passive investor would have on December 31, 2011 if she invested $10,000 on January 1, 2002 in the active portfolio

C. Which portfolio was more risky?

D. Calculate the correlation between the return for these two portfolios.

E. How do you explain the close association in returns.

5.82%

Vanguard 500 Index Fund Vanguard Growth & Income Fund 2011 2.08% 2.42% 2010 15.05% 14.62% 2009 26.62% 22.42% 2008 36.97% -37.72% 2007 5.47% 2.62% 2006 15.75% 14.01% 2005 4.87%

5.82%

Explanation / Answer

Hi,

Please find the correct answer as follows:

Hence the  passive investor would have $45372.98 on December 31, 2011

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Hence, the  passive investor would have $19537.15 on December 31, 2011 if invested in active portfolio

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C) To know the riskiness of the portfolio, we need to caluclate standard deviation using excel

The standard deviation of the portfolios are:

SInce, the standard deviation of Vanguard Growth & Income Fund is more, hence, it is the risky portfolio.

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Using excel,we can calulate the co relation

Hence, the corelation is -0.16

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The corelation suggests that the relationship between the two is negative

Vanguard 500 Index Fund Return Initial Investment 10000 2002 22.10% 12210.00 2003 28.59% 15700.84 2004 10.82% 17399.67 2005 4.87% 18247.03 2006 15.75% 21120.94 2007 5.47% 22276.26 2008 36.97% 30511.79 2009 26.62% 38634.03 2010 15.05% 44448.45 2011 2.08% 45372.98

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