EXERCISE #2:

Historically the S&P 500 Index has returned about 8% a year but returns are very uneven as recent experience has reminded us - the INDEX declined by more than 50% from its peak in 2007 and took 7 years to attain that peak level again. This year the S & P 500 Index has gained over 20% but last year it declined by over 6%.%. In contrast a typical Money Market Fund has returned about 2% a year with minimal fluctuation. Given this, evaluate the following:

c) You are considering investing several thousand dollars in a Money Market fund. If you plan to use this money as down payment on a house 1 year from now, how risky would you consider this investment? Briefly discuss your perception of risk in this decision, given your objective.

Very low Very high

risk ____ ____ ____ ____ ____ ____ ____ risk

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Briefly explain your decision: