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) 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)