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sheet 1 is with the orange highlighted sheet 2 says volatility at the bottom. please answer the questions One account increases at a 5% annual
sheet 1 is with the orange highlightedsheet 2 says volatility at the bottom. please answer the questions
One account increases at a 5% annual rate of return. The second account increases at a 6% annual rate of return. Compare the two account values after 5 years of return compounding. Compare the two account values after 30 years of return compounding a) After 5 years, is the difference in account values SMALL or LARGE? b) After 30 years, Is the difference in account values SMALL or LARGE? c) What conclusion(s) did you draw? Sheet 2: Volatility There are four series of annual returns covering a thirty-year period, with an average annual return of 2%,4%,6% and 8%, respectively. a) What happens to the difference between the average return and geometric return as volatility increases? By "difference", I mean average return minus geometric return. Does the difference INCREASE or DECREASE? b) The return per unit of risk decreases as volatility increases. Does the return per unit of risk decrease at a LINEAR rate or FASTER THAN A LINEAR RATE? c) What conclusion(s) did you draw? In other words, what did you learn? (extra credit question) One account increases at a 5% annual rate of return. The second account increases at a 6% annual rate of return. Compare the two account values after 5 years of return compounding. Compare the two account values after 30 years of return compounding a) After 5 years, is the difference in account values SMALL or LARGE? b) After 30 years, Is the difference in account values SMALL or LARGE? c) What conclusion(s) did you draw? Sheet 2: Volatility There are four series of annual returns covering a thirty-year period, with an average annual return of 2%,4%,6% and 8%, respectively. a) What happens to the difference between the average return and geometric return as volatility increases? By "difference", I mean average return minus geometric return. Does the difference INCREASE or DECREASE? b) The return per unit of risk decreases as volatility increases. Does the return per unit of risk decrease at a LINEAR rate or FASTER THAN A LINEAR RATE? c) What conclusion(s) did you draw? In other words, what did you learn? (extra credit question)Step by Step Solution
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