Question
(Average compounding rate) WindyRoad is an investment company which has two mutual funds. The WindyRoad Dull Fund invests in boring corporate bonds, and its Lively
(Average compounding rate) WindyRoad is an investment company which has two mutual funds. The WindyRoad Dull Fund invests in boring corporate bonds, and its Lively Fund invests in "high-risk, high-return" companies. The returns for the two funds in the 5-year period 2011-2015 are given in the table below.
DULL FUND OR LIVELY FUND? | |||
---|---|---|---|
Year | Dull Fund return | Lively Fund return | |
2011 | 8.00% | 11.50% | |
2012 | 5.20% | -14.50% | |
2013 | 4.30% | -20.00% | |
2014 | 3.30% | 42.50% | |
2015 | 7.00% | 14.00% | |
Average return | 5.56% | 6.70% | <-- =AVERAGE(C3:C7) |
a. Suppose you had invested $100 in each of the two funds at the beginning of 2011. How much would have at the end of 2015?
b. What was the effective annual interest rate (EAIR) paid by each of the funds over the 5-year period 2011-2015?
c. Is there a conclusion you can draw from this example?
**Please respond with Excel**
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