Edward Rackley from the Northern Beaches won $200,000 through a lottery in September 2018. He received...

 

Transcribed Image Text:

Edward Rackley from the Northern Beaches won $200,000 through a lottery in September 2018. He received this windfall in December 2018 on his birthday when he turned 60. He plans to invest this windfall in a good fund to live a comfortable life when he retires in the next five years. Lottery SAND $200.000 BACK SCRATCH Scratch the back for more chances to w 8888 Edward Rackley $200,000 Year 2014 2015 Sept 10,201 2016 2017 2018 On 1st January 2019, Edward approached you for investment advice. After considering Edwards' risk profile, you advised him to invest his prize money in an S&P 500 ETF, which has traditionally delivered the following returns: Instant 00,000! Ticket Winner MES! Returns 11.4% -0.75% 9.5% 19.4% -6.25% Year 2014 2015 2016 2017 2018 Returns 11.4% -0.75% 9.5% 19.4% -6.25% i) What is the difference between the geometric and arithmetic average rate of return? Which is a better indicator for anticipating returns from an investment instrument and why? [3 Marks] ii) Calculate the ETF's geometric and arithmetic average return rate using the abovementioned information in the table. [4 Marks] iii) After four years, Edward called you to enquire about the value of his investments. As you were not in your office, you decided to calculate Edward's investments' worth using the online information. The S&P 500 ETF delivered a geometric average return of 8.85% (I/Y) in the past four years. You rememb that Edward originally invested $200,000 (PV) and has neither added nor withdrawn any amounts from the fund (PMT = 0). Calculate the value of Edwards' investments. (5 Marks) iv) Edward is happy with the performance of his investments but also curious to know how his returns were higher than anticipation. Write a brief note explaining the difference between expected and actual returns to Edward. (3 Marks) № G Edward Rackley from the Northern Beaches won $200,000 through a lottery in September 2018. He received this windfall in December 2018 on his birthday when he turned 60. He plans to invest this windfall in a good fund to live a comfortable life when he retires in the next five years. Lottery SAND $200.000 BACK SCRATCH Scratch the back for more chances to w 8888 Edward Rackley $200,000 Year 2014 2015 Sept 10,201 2016 2017 2018 On 1st January 2019, Edward approached you for investment advice. After considering Edwards' risk profile, you advised him to invest his prize money in an S&P 500 ETF, which has traditionally delivered the following returns: Instant 00,000! Ticket Winner MES! Returns 11.4% -0.75% 9.5% 19.4% -6.25% Year 2014 2015 2016 2017 2018 Returns 11.4% -0.75% 9.5% 19.4% -6.25% i) What is the difference between the geometric and arithmetic average rate of return? Which is a better indicator for anticipating returns from an investment instrument and why? [3 Marks] ii) Calculate the ETF's geometric and arithmetic average return rate using the abovementioned information in the table. [4 Marks] iii) After four years, Edward called you to enquire about the value of his investments. As you were not in your office, you decided to calculate Edward's investments' worth using the online information. The S&P 500 ETF delivered a geometric average return of 8.85% (I/Y) in the past four years. You rememb that Edward originally invested $200,000 (PV) and has neither added nor withdrawn any amounts from the fund (PMT= 0). Calculate the value of Edwards' investments. (5 Marks) iv) Edward is happy with the performance of his investments but also curious to know how his returns were higher than anticipation. Write a brief note explaining the difference between expected and actual returns to Edward. (3 Marks) № G Edward Rackley from the Northern Beaches won $200,000 through a lottery in September 2018. He received this windfall in December 2018 on his birthday when he turned 60. He plans to invest this windfall in a good fund to live a comfortable life when he retires in the next five years. Lottery SAND $200.000 BACK SCRATCH Scratch the back for more chances to w 8888 Edward Rackley $200,000 Year 2014 2015 Sept 10,201 2016 2017 2018 On 1st January 2019, Edward approached you for investment advice. After considering Edwards' risk profile, you advised him to invest his prize money in an S&P 500 ETF, which has traditionally delivered the following returns: Instant 00,000! Ticket Winner MES! Returns 11.4% -0.75% 9.5% 19.4% -6.25% Year 2014 2015 2016 2017 2018 Returns 11.4% -0.75% 9.5% 19.4% -6.25% i) What is the difference between the geometric and arithmetic average rate of return? Which is a better indicator for anticipating returns from an investment instrument and why? [3 Marks] ii) Calculate the ETF's geometric and arithmetic average return rate using the abovementioned information in the table. [4 Marks] iii) After four years, Edward called you to enquire about the value of his investments. As you were not in your office, you decided to calculate Edward's investments' worth using the online information. The S&P 500 ETF delivered a geometric average return of 8.85% (I/Y) in the past four years. You rememb that Edward originally invested $200,000 (PV) and has neither added nor withdrawn any amounts from the fund (PMT = 0). Calculate the value of Edwards' investments. (5 Marks) iv) Edward is happy with the performance of his investments but also curious to know how his returns were higher than anticipation. Write a brief note explaining the difference between expected and actual returns to Edward. (3 Marks) № G Edward Rackley from the Northern Beaches won $200,000 through a lottery in September 2018. He received this windfall in December 2018 on his birthday when he turned 60. He plans to invest this windfall in a good fund to live a comfortable life when he retires in the next five years. Lottery SAND $200.000 BACK SCRATCH Scratch the back for more chances to w 8888 Edward Rackley $200,000 Year 2014 2015 Sept 10,201 2016 2017 2018 On 1st January 2019, Edward approached you for investment advice. After considering Edwards' risk profile, you advised him to invest his prize money in an S&P 500 ETF, which has traditionally delivered the following returns: Instant 00,000! Ticket Winner MES! Returns 11.4% -0.75% 9.5% 19.4% -6.25% Year 2014 2015 2016 2017 2018 Returns 11.4% -0.75% 9.5% 19.4% -6.25% i) What is the difference between the geometric and arithmetic average rate of return? Which is a better indicator for anticipating returns from an investment instrument and why? [3 Marks] ii) Calculate the ETF's geometric and arithmetic average return rate using the abovementioned information in the table. [4 Marks] iii) After four years, Edward called you to enquire about the value of his investments. As you were not in your office, you decided to calculate Edward's investments' worth using the online information. The S&P 500 ETF delivered a geometric average return of 8.85% (I/Y) in the past four years. You rememb that Edward originally invested $200,000 (PV) and has neither added nor withdrawn any amounts from the fund (PMT= 0). Calculate the value of Edwards' investments. (5 Marks) iv) Edward is happy with the performance of his investments but also curious to know how his returns were higher than anticipation. Write a brief note explaining the difference between expected and actual returns to Edward. (3 Marks) № G

Answer rating: 100% (QA)

To answer your questions i The difference between the geometric and arithmetic average rate of return is in how they are calculated The arithmetic ave... View the full answer