We will judge investments in terms of E(log-returns) and express volatility in t

Question

We will judge investments in terms of E(log-returns) and express volatility in terms of SD(log-returns). We are using natural logarithms to the base e=2.718... (written as „ln).  We compare two investments called „Hyper and „Super. We assume that their monthly log-returns are well modeled by i.i.d. random variables with the following characteristics: E(Hyper)=0.002

SD(Hyper)=0.02

E(Super)=0.003

SD(Super)=0.03

In the following two questions we project these investments 12 years out.

1. Which investment has a better chance to at least double the initial amount over 12 years?

A. Hyper
B. Super
C. About the same chance
D. Cant be known based on the given information.

2. Which investment has a better chance to make any money at all over 12 years?

A. Hyper
B. Super
C. About the same chance
D. Cant be known based on the given information

Explanation / Answer

A stock having more returns and more volatility has a higher chance of generating more income. Thus, the answers to questions are as below: -

1.

B- Super

2.

C- About the same chance

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.