Use the model in File C16 to work this problem.

a. Refer back to Problem 16-9. Assume that George Rice has another investment portfolio that he set up to help pay for his daughter’s college education. The market values of his daughter’s portfolio from 2008 through 2013 are as follows:

End of Year Portfolio Value

2008.......... $5,500

2009.......... 5,000

2010.......... 5,510

2011 .......... 6,010

2012 .......... 6,705

2013.......... 6,945

Compute both the simple average return and the geometric average return for this portfolio. How does this portfolio compare to the portfolio that is given in Problem 16-9?

b. Assume that the values for both portfolios and the S&P 500 Index are as follows during the next five years:

Compute both the simple average return and the geometric average return for the portfolios during the five-year period. Compare the portfolios’ performances.
c. Compare the risk/return relationships of theportfolios.

Transcribed Image Text:

End of Year George's Portfolio $44,850 50,250 40,250 45,120 50,150 Daughter's Portfolio 2014 2015 2016 2017 2018 $7,350 7,105 7,800 8,210 9,000 S&P 500 Index 2117 2287 2481 3101 2884