Problem 1: You know that someone invested $1,500 in the Ec140 mutual fund ten years ago (and they reinvested all dividend and capital gains distributions). You now learn that their balance in the fund has grown to $9,245. (a) What has the geometric rate of return been for the Ec140 fund for the last ten years? (b) What do you know about the arithmetic mean of the returns over the past 10 years?
Problem 2: You manage an equity fund with an expected risk premium of 8% and an expected standard deviation of 15%. The rate of return on perfectly safe Treasury Bills is 2%. Your client chooses to invest $70,000 of her portfolio in your equity fund and $30,000 in T-bills. What is the expected return and standard deviation of return on her portfolio?