The estimated annual return I, of a hedge fund for the next 12 years is either 5%, 6%, 7.5% or 9% with corresponding probabilities of 15%, 35%, 30% and 20%. Calculate the expected value and the standard deviation of the accumulated amount at the end of the next 12-year period of a £0.25 million investment made at time t = 0 under the following forecast scenarios: (i) (ii) That the annual rate of return of 5%, 6%, 7.5% or 9% is fixed at that rate for the entire duration of the 12 years That the annual rate of return on the fund in any year, It, varies independently of the returns in all previous years.
The estimated annual return I, of a hedge fund for the next 12 years is either 5%, 6%, 7.5% or 9% with corresponding probabilities of 15%, 35%, 30% and 20%. Calculate the expected value and the standard deviation of the accumulated amount at the end of the next 12-year period of a £0.25 million investment made at time t = 0 under the following forecast scenarios: (i) (ii) That the annual rate of return of 5%, 6%, 7.5% or 9% is fixed at that rate for the entire duration of the 12 years That the annual rate of return on the fund in any year, It, varies independently of the returns in all previous years.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:The estimated annual return It of a hedge fund for the next 12 years is either 5%, 6%, 7.5% or 9% with
corresponding probabilities of 15%, 35%, 30% and 20%.
Calculate the expected value and the standard deviation of the accumulated amount at the end of the
next 12-year period of a £0.25 million investment made at time t = 0 under the following forecast
scenarios:
(i)
(ii)
That the annual rate of return of 5%, 6%, 7.5% or 9% is fixed at that rate for the entire duration of
the 12 years
That the annual rate of return on the fund in any year, It, varies independently of the returns in all
previous years.
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