= Suppose you hold a long-horizon investment for H years and the H-period return WH (1...
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= Suppose you hold a long-horizon investment for H years and the H-period return WH (1 + R₁) (1 + R₂) ... (1 + Rµ). Assume that the continuously compounded return r = ln(1 + Rt), is independent and identically distributed (iid) following a normal distribution, then ln(WH) is normally distributed with mean Hu and variance Ho². (a) Write down the formula for E(WH), the expected value of WH. (5pts) (b) If u = 8%, o = 16%, and H = 60, then calculate the value of E(WH). (3pts) (c) If we do not know the value of parameter μ and use its sample estimated value==t1₁rt instead to calculate E(WH). For a finite number H, H which expected value is larger, E(Ŵ₁) or E(W)? Briefly explain your answer. (6pts) = Suppose you hold a long-horizon investment for H years and the H-period return WH (1 + R₁) (1 + R₂) ... (1 + Rµ). Assume that the continuously compounded return r = ln(1 + Rt), is independent and identically distributed (iid) following a normal distribution, then ln(WH) is normally distributed with mean Hu and variance Ho². (a) Write down the formula for E(WH), the expected value of WH. (5pts) (b) If u = 8%, o = 16%, and H = 60, then calculate the value of E(WH). (3pts) (c) If we do not know the value of parameter μ and use its sample estimated value==t1₁rt instead to calculate E(WH). For a finite number H, H which expected value is larger, E(Ŵ₁) or E(W)? Briefly explain your answer. (6pts)
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The detailed answer for the above question is provided below a E WH exp Hu Ho 2 b E ... View the full answer
Related Book For
Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt, Eugene F. Brigham
Posted Date:
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