A. Rates of Return An investor earned a geometric average return over 4 years of

Question

A. Rates of Return An investor earned a geometric average return over 4 years of 13.30%. The first year's return was 13.80%, the second year's return was -3.40%, the third year's return was 24.40%. What was the fourth year's return?

B. Portfolio Returns Suppose you have $10,400 invested in a stock portfolio in October. You have $4,800 invested in Stock A, $3,300 in Stock B and $2,300 in Stock C. The HPR for the month of September for Stock A was 2.6%, for Stock B the HPR was -5.7% and for Stock C the HPR was 4.1%. What was the average HPR for the portfolio for the month of October?

C. Ex-Ante Standard Deviation An analyst estimates a 18% probability of a recession next year, a 53% probability of normal economic growth and a 29% probability of a strong recovery. If a recession occurs a stock is projected to have a -16.8% return. With normal growth the stock will generate a 11.8% return and if the strong recovery occurs the stock will have a 26.8% rate of return. This stock's standard deviation is

A. Rates of Return An investor earned a geometric average return over 4 years of 13.30%. The first year's return was 13.80%, the second year's return was -3.40%, the third year's return was 24.40%. What was the fourth year's return?

Explanation / Answer

I have answered question number A, hope this helps!

Given geometric mean return = 13.30%

13.80%

-.340%

24.40%

x

Using the geometric mean formula,

13.30 = 4th root of(13.80 * -3.40 * 24.40 * x)

by taking 4th root to other side,

13.30^4 = 13.80 * -3.40 * 24.40 * x

31290.07 = -1144.848 * x

x = -27.33%

So, 4th year return is -27.33%

13.80%

-.340%

24.40%

x

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