ABC Investment has two mutual funds. The Dull Fund invests in corporate bonds and the Lively Fund in small cap stocks. The returns for both funds from 2001 to 2005 are given in the left.

a. Suppose you invest $100 in each of the two funds at the beginning of 2001. How much would you have at the end of 2005?

b. What is the EAR for each fund over the 5-year period?

c. Compute the annual continuous return (APR) for each fund for each of the years 2001-2005. What is the average continuous APR, rc, for each fund?

d. Suppose you had invested $100 in each of the two funds at the beginning of 2001. Show that the total amount of the fund at the end of 2005 can be written as 100*EXP(rc). Note that this makes computations much simpler.

DULL FUND OR LIVELY FUND? Dull Fund return Lively Fund Year 2001 2002 2003 2004 2005 return 9.20% 5.20% 4.30% 3.30% 11 .50% -14.50% -23.40% 42.40% 13.60% Average return 5.80% 5.92%