Problem 1.9 An International Equity Fund reported the annual returns for the years 2001- 2005 in the following table. year 2001 2002 2003 2004 2005 returns -9.04% -8.25% 26.13% 22.94% 11.55%

(a) At the beginning of 2001 Ms. Allen invests $10,000 in this mutual fund where it remains for the next five years. Find the values of her portfolio (to the nearest dollar) at the end of each year beginning at 2001 and enter your answers in the table below. year 2001 2002 2003 2004 2005 value of portfolio

(b) Compute Ms. Allen’s annualized rate of return for the five year period 2001-2005.

(c) It is known that the annualized rate of return is always less than the average return. (It is a consequence of the arithmetic-geometric mean inequality.) Compute the investor’s average rate of return for the same period and verify that it is larger than the annualized rate of return.