Question
Data set myclass.annexmkt includes the annual U.S. market excess return (in excess of one-month Treasury bill rate)from 1927 to 2020. Note that the returns are
Data set myclass.annexmkt includes the annual U.S. market excess return (in excess of one-month Treasury bill rate)from 1927 to 2020. Note that the returns are in percentage. For example, if the value is 35, it means 35%. Imagine that you are a portfolio manager and you are advising potential clients about the benefit of long-term investment: if an investment horizon is 5 years, what is the probability that the investment return is positive and what is the average annual return for investing over 5 years. Please use DATA STEP to calculate - 5-year cumulative U.S. market excess returns for every year between 1927 and 2020 that has a consecutive 5-year window. For instance,if one invests at the beginning of year t, the 5-year cumulative return is calculated for the years t,t+1,...,and t+4. Please calculate the compounded 5-year return as the cumulative return. - Then, calculate the probability of achieving a positive 5-year cumulative return and also calculate average annual return for the 5-year investment window. Are your analyses convincing enough to suggest to your clients that it pays off to take market risk and invest long term? *
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