Homework: Chapter 11 Homework Score: 0 of 1 pt P 11-11 (book/static) Save 3 of 1

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Homework: Chapter 11 Homework Score: 0 of 1 pt P 11-11 (book/static) Save 3 of 14 (2 complete) Hw Score: 14.29%, 2 o… Question Help * Ten annual returns are listed in the following table: -19.1% 16.2% 17.9% -49.5% 43.3% 1.2% -16.7% 45.7% 44.6% a. What is the arithmetic average return over the 10-year period? b. What is the geometric average return over the 10-year period? c. If you invested $100 at the beginning, how much would you have at the end? return over the 10-year period? The arithmetic average return over the 10-year period is Round to four decimal places ) click Check Answer. parts Clear All Check Answer

Explanation / Answer

Arithmetic Avergae=(-19.1%+16.2%+17.9%-49.5%+43.3%+1.2%-16.7%+45.7%+44.6%)/9=9.2889%

Geometric Avergae=((1-19.1%)*(1+16.2%)*(1+17.9%)*(1-49.5%)*(1+43.3%)*(1+1.2%)*(1-16.7%)*(1+45.7%)*(1+44.6%))^(1/9)-1=4.0096%

If You had invested 100 it will become 100*(1+Geometric Avergae)^9=100*(1+4.0096%)^9=142.4495

Return=(41.48+0.18+0.21+0.22+0.22-31.06)/31.06=36.22%

95% Var=mean-1.65*s.d.=12.3%-1.65*19.8%=-20.37% Option C Hence we can be confident it will not lose more than 30% and low end is greater than -30% because -20.37% is greater than -30%

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