Use THE CHART ATTACHED BELOW TO ANSWER THE QUESTION

1. Use the data in Table 12.1 to answer the following. Assume you are creating portfolios at the start of 2005 and then selling them at the end of 2010 (i.e. they will be held for six years). Calculate the arithmetic and geometric average returns for each of the following three portfolios. Assuming you started with $1,000 in each portfolio, what will the final value of each portfolio be? (Ignore any taxes.)

A. 100% in large company stocks

B. 100% in long term government bonds

C. 60% in large company stocks & 40% in long term government bonds

Large- Long-Term U.S. Consumer Company Government Treasury Year Price Stocks Bonds Bills Index 1970 3.94 18.92 6.50 5.57 1971 14.30 11.24 4.30 3.27 1972 18.99 2.39 4.23 3.41 1973 -14.69 3.30 7.29 8.71 1974 -20.47 4.00 7.89 12.34 1975 37.23 5.52 5.67 6.94 1970 23.83 15.56 5.07 4.80 1977 -7.16 38 5.45 6.70 1978 0.57 -1.20 7.64 9.02 1979 18.61 -2.76 10.58 13.29 1980 32.50 -2.48 12.10 12.52 1981 -4.92 4.04 14.00 8.92 1982 21.55 44.28 10.94 3.83 1983 22.50 1.29 8.99 3.79 1984 6.27 15.29 9.90 3.95 1985 31.73 32.27 7.71 3.80 1986 18.67 22.39 6.09 1.10 1987 5.25 -3.03 5.68 4.43 1988 10.01 0.84 6.94 4.42 1909 31.69 16.54 8.44 4.65 1990 -3.10 7.74 7.09 6.11 1991 30.46 19.36 5.43 3.06 1992 7.02 7.34 3.48 2.90 1993 10.08 13.06 3.03 2.75 1994 1.32 -7.32 4.39 2.67 1995 37.58 25.94 5.01 2.54 1996 22.98 .13 5.14 3.32 1997 33.30 12.02 5.19 1.70 1998 28.58 14.45 4.86 1.61 1999 21.04 -7.51 4.60 2.08 2000 -9.10 17.22 5.98 3.39 2001 -11.89 5.51 3.33 1.55 2002 -22.10 15.15 1.01 2.38 2003 28.89 2.01 .94 1.88 2004 10.88 8.12 1.14 3.20 2005 4.91 6.89 2.79 3.42 2006 15.79 .26 4.97 2.54 2007 5.49 10.85 4.52 4.08 2008 -37.00 41.78 1.24 .09 2009 20.46 -25.01 -15 2.72 2010 15.06 7.73 .14 1.50 2011 2.11 35.75 2.90 2012 16.00 1.80 08 1.74 2013 32.39 -14.09 .05 1.50