What are the potential Black Swan?

BBA Miced Batch (Course Money and Banking) pdf Open with Google Docs CASE STUDY NO. 03 (Chapter 04 by R. Glenn Hubbard) Willa Black Swan Eat Your 401(k)? If you go to work for a medium-size or large company, one of the benefits is likely to be a company sponsored 401(k) retirement plan. Established under a law passed by Congress in 1978 these plans allow you to save for retirement by investing part of your salary in financial assets typically mutual funds that buy stocks and bonds. You don't pay taxes on the funds you contribute to your 401(k) plan or on earnings on the funds if you don't withdraw them until after you reach retirement age In choosing among the options that most firms provide you will want to take into account both the expected return and the level of risk. As we have just seen, in financial market there is a trade off between risk and return, with the riskiest assets typically having the highest expected returns The following table provides data from 1926 to 2015 on four financial assets that are widely owned by investors. The "small" companies in the table are only small in the context of the US stock market. In fact, they are fairly large, with the total value of their shares of stock being between 5300 million and S2 billion. The large companies include General Motors, AT&T, McDonald's Apple, and the other 500 firms included in the S&P 500, which is an average of the stock prices of firm valued at more than 55 billion. The average and return is the simple average of the 89 yearly returns for each of the four assets during this period Risk is measured as the volatility of the annual returns and is calculated as the standard deviation of each asset's annual returns during this period The data in the second and third columns of the table illustrate the trade-off between risk and retum Investors in stocks of small companies during these years experienced the highest everage retums but also accepted alls experienced the lowest average returns but also fac Page 57 Search o