Marcus has an investment portfolio that paid the rate of return of 24.75%, -11%, - 30%, 19%, 15.5%, 12% and 20% over the last seven (7) years. Required: a) Calculate the arithmetic average return and the geometric average return of
Marcus has an investment portfolio that paid the
Required:
-
a) Calculate the arithmetic average return and the geometric average return of this
portfolio.
-
b) Discuss the difference between arithmetic average return and the geometric
average return. When should Marcus use a specific average return?
-
c) If the following information is available for Marcus’s portfolio in the
forecast for next year, calculate the expected return and identify the risk of return by computing the variance and the standard deviation.
State of economy
Boom Normal Recession
Question 5
Probability of the economic state
0.55 0.30 0.15
Rate of Return
25% 17% -8%
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