Question

Average 4-2 The spreadsheet below contains the total returns for the S&P 500 Index for the years 2000-2009 in decimal form. This 10-year period has been called the "Lost Decade a. Calculate the average annual total return (geometric mean) for this index for this 10-year period. Interpret your result. b. What was the cumulative wealth on December 31, 2009, per dollar invested on January 1, 2000? c. What was the cumulative wealth on December 31, 2002, per dollar invested on January 1, 2000? d. Given a $100 investment in the S&P 500 Index on January 1, 2000, in what year did this investment finally break above $1007 2000 2001 2002 2003 09088 0.8812 0.7791 12867 11087 1.0491 1.1574 10549 2004 2005 2005 2007 2008 2009 12646

Answer 1

4.2 2000 0.9088 2001 0.8812 0-7791 2002. 2003 1.2867 NO 87 2004 2005 TOU9) 1.1574 Tosun 2006 2007 2008 2009 1.2646 (a) Average annual return over 10 period (geometric mean) - 70,******* 9088 0.8812 --- :63 X | 2646 = 0.9994 per dollar (6) Cummulative wealth on December 31, 2009 invested on January 1, 2000, No. of years = 10 years Average annual rate oggoy Dec 31, 2009 = $1 x (0.9904)" Commulative wealth on = $0.91

per dollar c) cummulative wealth on December 31, 2002 invested in January 1, 2000. X 0.779/ $1 x 0.9088 * 0.8812 (returnst (2001 2001 (yulur. 2006) 2002 $0.62 (d) In what year did the investment break above & 100 Investment done = $ 100 value on December 31, 2000 = $100 x 0.9088 = $90.88 Value on December 31, 2001 = $90.88% 0.8812 = $80.08 valul on December 31, 2002 = $80.08 x 0.7751 - $62.39 valu on December 31, 2003 = $62.39 x 1.2867 = $80.28 value on December 31, 2004 = $80.28 × 1.1887 = $89.00 value on December 31,2005 = $99.100 x 10ugi = $ 93-38 value on December 31, 2006 = $9.3:38 111574 = $108.08 above froo. Therefore, In 2006, investment will finally break