Question 14

Assume you invest $1 in the underlying asset or portfolio at the beginning of period 1. What is the value of wealth at the end of period 5 (to nearest cent)?

1. (a) $1.32

2. (b) $1.35

3. (c) $1.36

4. (d) $1.43

5. (e) None of the above

Question 15

Given the standard deviation of 15.7% and assuming independent returns, what is the standard deviation of wealth over 3 periods (to the nearest decimal place)?

(a) 22.2%

(b) 27.2%

(c) 47.1%

(d) 54.9%

(e) 68.6%

Questions 12 to 16 refer to the following 5-period sequence of gross returns plus the supplementary information provided below: Period Return 1 2 16% -1% 30% 3 4 -10% 5 2% Supplementary information: Standard deviation of series Risk-free rate 15.7% 3.0%