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Suppose you have 2 financial assets (A and B respectively) whose annual returns are shown in the following table. Assume you invest $100,000 in each,
Suppose you have 2 financial assets (A and B respectively) whose annual returns are shown in the following table. Assume you invest $100,000 in each, and the proceeds from year 1 are reinvested in year 2 and so on. (a) How much money do you accumulate in each of them after 5 years? Explain. (b) For each fund, calculate the single annual rate which would yield the same return over the 5-year period. (c) What is the expected return for next year (calculate for both Asset A and Asset B)? (d) What is the expected return and standard deviation of a portfolio that invest 2/3 in A and 1/3 in B ? Year Asset A 1 2 10% 2% 5% Asset B 6% 7% 5% 3% 6% 3 4 5 10% 12% 5
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