In 2000, the Dow Jones Industrial Average’s range was 11,723–9,796. If the histo

Question

In 2000, the Dow Jones Industrial Average’s range was 11,723–9,796. If the historical returns on stock were 10.4 percent, what should have been the range in the Dow Jones Industrial Average for 2009 if that return had continued to be achieved for 2000 through 2009? Compare your estimated range with the actual range. What inference(s) can you draw? During 1973, the range of the Dow Jones Industrial Average was 1,052–788 and during 1982, the range was 1,074–766. Do you see any similarities between the two time periods (1973–1982 and 2000– 2009)? What do these time periods suggest about using a buy and hold strategy or an index strategy?

Explanation / Answer

Average level of Dow Jones in 2000=21519/2

=10759.5

expected average level may be =10759.5(1+.104)9

=26212.2

expected range =26212-8.95%to 26212+8.95%(range according to % difference in high low range)

=23086---28557

actual range 8776 to 10545

this period was an abberation as index move no where durinf 73 to 82 there was same case

these time period suggest that using a buy and hold stretegy dont work always in these time periods stretegy of averaging may be helpful

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