Problem 5.40 This is a continuation of Problem 1.10. An important performance measure of a stock market portfolio is to compute its annualized returns for the best three year period, as well as the worst three year period, over the past ten years. For the S&P500 the best three year period (over the ten year period 1995-2004) is 1997-1999, and the worst three year period is 2000-20002. The table below lists the annual returns (excluding commissions, but including dividends and their reinvestments) for the S&P500 for the six years (1997-2002). year 1997 1998 1999 2000 2001 2002 return 33.4% 28.6% 21.0% -9.1% -11.9% -22.1%

(a) At the beginning of 1997 Mr. Fisher takes $10,000 in savings out of the bank and invests it in the S&P500, where it remains for the next six years. Find the values of Mr. Fisher’s portfolio (to the nearest dollar) at the end of 2000, 2001, and 2002 and enter your answers in the table below. year 2000 2001 2002 value of portfolio

(b) Find the annualized rate of return for the six year period (1997-2002).