Case study 2: Mr and Mrs Vincent have $50,000 of non-superannuation savings invested in a managed fund operated by Morrison Investments. The fund has equal exposure to each of the following asset classes: Australian Equity, Australian Bonds, Cash, International Equity, International Equity (Hedged), International Bonds (Hedged) and A-Reits. You are tasked with checking the performance of the fund. (a) Start your analysis by completing the table below. Specifically, using the information provided in Exhibit A, estimate the arithmetic mean of annual returns estimated using the 10- years and 20-years to the end of 2020, as well as the whole period 1987-2020 inclusive. Then estimate the standard deviation (sample) of annual returns using the whole period to the end of 2020. Round your answers to one decimal place. (The mean 10-year annual return and the standard deviation of annul returns for the whole period calculated for the Australian equity asset class have been completed for you as a guide. (5 marks) Mean Annual Returns Std. Dev of Annual Returns 7.8% Australian Equity Whole period 21.5% Australian Bonds Whole period International Equity Whole period International Equity (Hedged) 10-Year 20-year Whole period 10-Year 20-year Whole period 10-Year 20-year Whole period 10-Year 20-year Whole period 10-Year 20-year Whole period 10-Year 20-year Whole period 10-Year 20-year Whole period Whole period International Bonds (Hedged) Whole period A-Reits Whole period Cash Whole period 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Exhibit A: Annual Returns for Morrison Investments' managed fund Aust. Aust. Int. Int. Equity Int.Bonds Equity Bonds Cash Equity Hedged Hedged -13.4 22.6 14.6 26.3 17.4 22.6 66.8 14.3 11.1 32.8 26.4 14.3 -2.3 12 10.9 14 11.8 12 44.1 8.1 15.2 70.2 29.6 24.7 52.2 18.9 15.6 45.6 30.6 25.3 -7.9 18.6 12.8 6.9 0.6 13.5 17.9 9.4 12.9 4.3 33.8 13.7 17.4 14.4 18.4 26 35.6 17.9 -17.5 19 16.1 -15.1 -16.2 13.3 34.2 24.7 11.2 20.2 19.2 18.4 -2.3 10.4 6.9 4.5 -0.8 11.1 45.4 16.3 5.4 24.4 21.4 14.8 -8.7 -4.7 5.4 -8.1 -0.1 -2.7 20.2 18.6 8 25.9 22.3 20.1 14.6 11.9 7.6 6.3 19.7 10.7 12.2 12.2 5.6 47.8 21.2 10.5 11.6 9.5 5.1 30.9 23.3 10.4 16.1 -1.2 5 16.1 23.9 0.8 4.8 12.1 6.3 5.9 -7.9 10.1 10.5 5.5 5.2 -9.1 -14.8 7.4 -8.6 8.8 4.8 -27.2 -22.7 11.6 15 3 4.9 0 29.3 6.6 27.9 7 5.6 10.6 15.8 8.9 22.5 5.8 5.7 17.1 18.5 6.6 24.5 3.1 6 11.8 17.6 4.4 16.2 3.5 6.7 -1.9 6.4 6.6 -38.9 15 7.6 -25.9 -39.4 9.2 37.6 1.7 3.5 2 28.4 8 1.9 6 4.7 -1.4 13.5 -11 11.4 5 -5.7 -2.4 10.5 19.7 7.7 4 14.7 19.1 9.7 19.7 2 2.9 47.8 32.3 2.3 5.3 9.8 2.7 15 12.4 10.4 2.8 2.6 2.3 11.5 3.7 3.3 A-Reits 5.2 50.2 10.1 5.3 35.4 5.8 16.1 2.4 8.7 20.1 7 30.1 -5.6 12.7 14.5 20.3 18 -5 17.9 15 11.9 8.8 32.2 12.7 34.1 -8.4 -55.3 9.6 -0.7 -1.6 32.8 7.3 26.8 14.4 9.3 1 Case study 2: Mr and Mrs Vincent have $50,000 of non-superannuation savings invested in a managed fund operated by Morrison Investments. The fund has equal exposure to each of the following asset classes: Australian Equity, Australian Bonds, Cash, International Equity, International Equity (Hedged), International Bonds (Hedged) and A-Reits. You are tasked with checking the performance of the fund. (a) Start your analysis by completing the table below. Specifically, using the information provided in Exhibit A, estimate the arithmetic mean of annual returns estimated using the 10- years and 20-years to the end of 2020, as well as the whole period 1987-2020 inclusive. Then estimate the standard deviation (sample) of annual returns using the whole period to the end of 2020. Round your answers to one decimal place. (The mean 10-year annual return and the standard deviation of annul returns for the whole period calculated for the Australian equity asset class have been completed for you as a guide. (5 marks) Mean Annual Returns Std. Dev of Annual Returns 7.8% Australian Equity Whole period 21.5% Australian Bonds Whole period International Equity Whole period International Equity (Hedged) 10-Year 20-year Whole period 10-Year 20-year Whole period 10-Year 20-year Whole period 10-Year 20-year Whole period 10-Year 20-year Whole period 10-Year 20-year Whole period 10-Year 20-year Whole period Whole period International Bonds (Hedged) Whole period A-Reits Whole period Cash Whole period 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Exhibit A: Annual Returns for Morrison Investments' managed fund Aust. Aust. Int. Int. Equity Int.Bonds Equity Bonds Cash Equity Hedged Hedged -13.4 22.6 14.6 26.3 17.4 22.6 66.8 14.3 11.1 32.8 26.4 14.3 -2.3 12 10.9 14 11.8 12 44.1 8.1 15.2 70.2 29.6 24.7 52.2 18.9 15.6 45.6 30.6 25.3 -7.9 18.6 12.8 6.9 0.6 13.5 17.9 9.4 12.9 4.3 33.8 13.7 17.4 14.4 18.4 26 35.6 17.9 -17.5 19 16.1 -15.1 -16.2 13.3 34.2 24.7 11.2 20.2 19.2 18.4 -2.3 10.4 6.9 4.5 -0.8 11.1 45.4 16.3 5.4 24.4 21.4 14.8 -8.7 -4.7 5.4 -8.1 -0.1 -2.7 20.2 18.6 8 25.9 22.3 20.1 14.6 11.9 7.6 6.3 19.7 10.7 12.2 12.2 5.6 47.8 21.2 10.5 11.6 9.5 5.1 30.9 23.3 10.4 16.1 -1.2 5 16.1 23.9 0.8 4.8 12.1 6.3 5.9 -7.9 10.1 10.5 5.5 5.2 -9.1 -14.8 7.4 -8.6 8.8 4.8 -27.2 -22.7 11.6 15 3 4.9 0 29.3 6.6 27.9 7 5.6 10.6 15.8 8.9 22.5 5.8 5.7 17.1 18.5 6.6 24.5 3.1 6 11.8 17.6 4.4 16.2 3.5 6.7 -1.9 6.4 6.6 -38.9 15 7.6 -25.9 -39.4 9.2 37.6 1.7 3.5 2 28.4 8 1.9 6 4.7 -1.4 13.5 -11 11.4 5 -5.7 -2.4 10.5 19.7 7.7 4 14.7 19.1 9.7 19.7 2 2.9 47.8 32.3 2.3 5.3 9.8 2.7 15 12.4 10.4 2.8 2.6 2.3 11.5 3.7 3.3 A-Reits 5.2 50.2 10.1 5.3 35.4 5.8 16.1 2.4 8.7 20.1 7 30.1 -5.6 12.7 14.5 20.3 18 -5 17.9 15 11.9 8.8 32.2 12.7 34.1 -8.4 -55.3 9.6 -0.7 -1.6 32.8 7.3 26.8 14.4 9.3 1