Question

Consider the following information about the annual returns of two investment funds.

	Investment fund A	Investment fund B
2015	27,5%	5,7%
2016	-18,9%	4,7%
2017	14,6%	7,8%
2018	-32,4%	-6,7%
2019	12,3%	5,3%

Which investment fund has achieved higher return over the five-year period considered? Provide calculations for proof!

Answer 1

Fund B will achieve higher return

Explanation:

Annual return of Investment A = [ (1+0.275) (1-0.189) (1+0.146) (1 - 0.324) (1+0.123)]^1/5 - 1

= [(1.275) (0.811) (1.146) (0.676) (1.123)]^0.20 - 1

= [0.8995848]^0.20 - 1

= 0.979058 - 1

= -2.09%

Annual return of Investment B = [ (1+0.057) (1+0.047) (1+0.078) (1 - 0.067) (1+0.053)]^1/5 - 1

= [(1.057) (1.047) (1.078) (0.933) (1.053)]^0.20 - 1

= [1.17206162]^0.20 - 1

= 1.0322 - 1

= 0.0322 or 3.22%