13.Your portfolio has provided you with returns of 8.6 percent, 14.2 percent, -3

Question

13.Your portfolio has provided you with returns of 8.6 percent, 14.2 percent, -3.7 percent, and 11.4 percent over the past four years, respectively. What is the geometric average return for this period?

A. 7.57%

B. 7.63%

C. 7.25%

D. 7.40%

14. The returns of StarCups are 25% in economic boom, 10% in normal economics, and -5% in economic recessions. If the probabilities of economic boom, normal economics and economic recession are 40%, 35%, and 25% respectively. What is the expected return of StarCups?

11.06%

12.25%

8.75%

9.88%

15. Home Grown Grains stock returned 28.7 percent, 2.6 percent, 13.1 percent, and 11.8 percent over the past four years, respectively. What is the arithmetic average return for this period?

14.05%

15.93%

14.62%

15.10%

PLEASE ANSWER ALL QUESTIONS

11.06%

12.25%

8.75%

9.88%

Explanation / Answer

13 . Calculation of geometric average . We simply add one to each number then multiply all the numbers together and raise their product to the power of one divided by the count of the numbers in the series. And then subtract one from the result.

= ( 1.086 * 1.142 * 0.963 * 1.114 ) ^ 1/4 - 1

= (1.33048 )^ 1/4 - 1

= 1..07399- 1 = 0.074= 7.40% Hence answer is D

14. Calculation of expected return

Senerio Return Probability

Economic boom 25% 40%

Normal economic 10% 35%

Economic recession -5% 25%

Expected return = ( 0.25)(0.40) + (0.10)(0.35) + (-0.05)(0.25) = 0.1+ 0.035 - 0.0125 = 0.1225 = 12.25% Hence answer is B

15. Calculation of arithmetic average return . Simply add up all stock returned and then divide that sum by the number of years

= ( 0.287 + 0.026 +0.131 + 0.118 ) / 4 = 0.1405 = 14.05 %. Hence answer is A

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