Suppose I hold an asset for two periods. Its return is -20% inthe first period...

Suppose I hold an asset for two periods. Its return is -20% in the first period and +10% in the second period.

Which is higher, the geometric average return or arithmetic average return?

Solutions

Expert Solution

Geomatric avergae = (-0.20*0.10)^1/2 = -0.14142135623

Arithmatic Average = (-0.20 + 0.10) / 2 = 0.05

Arithematic Average is higher

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

suppose asset a has an expected return of 10% and a standard deviation of 20% asset...

suppose asset a has an expected return of 10% and a standard deviation of 20% asset b has an expected return of 16% and a standard deviation of 40%.if the correlation between a and b is 0.6,what are the expected return and standard deviation for a prtifolio comprised of 40% asset a

Suppose a liquid asset and an illiquid asset have the same true return in every period....

Suppose a liquid asset and an illiquid asset have the same true return in every period. (The true returns, though, do vary from period to period.) Suppose, however, that the true return on the illiquid asset is always reported one period late. What effect will that have on the correlation of returns between the two assets. ENHANCE the correlation. LEAVE UNCHANGED the correlation. REDUCE the correlation. ENHANCE or LEAVE UNCHANGED the correlation. REDUCE or LEAVE UNCHANGED the correlation.

(a) Suppose you hold a bond, and the current one-year holding period rate of return is...

(a) Suppose you hold a bond, and the current one-year holding period rate of return is 6%. And we further know that the yield to maturity for this bond is also 6% now. Could you tell me which rate will be higher if the interest rate decreases? Why? (b) Suppose there are two bonds with the same yield-to-maturity and date to mature; but one is sold at premium, the other one is sold at discount. Could you tell me which...

Jenifer lives two periods. In the first period her income is fixed at $10,000; in the...

Jenifer lives two periods. In the first period her income is fixed at $10,000; in the second it is $20,000. She can borrow and lend at a rate of 10%. The interest rate increases to 15%. Intuitively (you don’t have to draw the graph) what do you expect this to do to her saving? Explain. Imagine Jenifer can only save, but cannot borrow. If she still faces an interest rate of 10%, show her budget constraint. Would this borrowing constraint...

Consider an individual that lives for two periods. She only works in the first period and...

Consider an individual that lives for two periods. She only works in the first period and receives a labor income equal to 200 Euros. Additionally, this individual receives a non-labor income equal to 20 Euros in each period. The interest rate in the economy is 10 %. She can consume in period 1 (c1) and in period 2 (c2). The price of the consumption good is equal to 1 in both periods. The individual has a Cobb-Douglas utility function of...

Suppose there are only two time periods, today (period 1) and tomorrow (period 2), and only...

Suppose there are only two time periods, today (period 1) and tomorrow (period 2), and only one consumption good, let’s call it food. Assume that food is a perfectly divisible good. Let c1 and c2 denote the amount of food consumed today and tomorrow, respectively. Note that here we use subscripts to denote time periods. But you should think of food today and food tomorrow as two different commodities. The price of food today is equal to p1 = P....

1. Suppose oil is only to be extracted over two periods (period 0 and period 1)...

1. Suppose oil is only to be extracted over two periods (period 0 and period 1) . T he inverse demand for oil is estimated to be p = 300 - q , where p is the price of oil and q is the quantity demanded. The marginal cost of extraction is given by MC = q . These relations do not change from period to period. Assume a discount rate of r = 0.05. Suppose the initial stock of...

In the two-period model of consumption, suppose that the first period income is $5,000 and the...

In the two-period model of consumption, suppose that the first period income is $5,000 and the second period income is $5,500 for both Jill and Jack. The interest rate is 10 percent. Jack’s lifetime utility function is ?1 + ?2 while Jill’s lifetime utility function is ?1 + 0.8?2. 1)Draw a graph that represents the common budget constraint that Jill and Jack face. 2)Draw indifference curves of Jill and Jack in separate graphs and compare the slopes of the indifference...

Consider the monthly returns of two risky assets. The return of the first asset has a...

Consider the monthly returns of two risky assets. The return of the first asset has a mean of 2% and standard deviation of 3%. The return of the second asset has a mean of 1.5% and standard deviation of 2%. The correlation coefficient of the two returns is 0.3. How can the minimum variance portfolio (MVP) be constructed? What are the mean and standard deviation of the return of the MVP? Consider a portfolio with 50% invested in asset 1...

Asset A has an expected return of 15% and standard deviation of 20%. Asset B has an expected return of 20% and standard deviation of 15%.

1. Asset A has an expected return of 15% and standard deviation of 20%. Asset B has an expected return of 20% and standard deviation of 15%. The riskfree rate is 5%. A risk-averse investor would prefer a portfolio using the risk-free asset and _______. A) asset A B) asset B C) no risky asset D) cannot tell from data provided2. The Sharpe-ratio is useful for A) borrowing capital for investing B) investing available capital C) correctly...

Subjects