Question

Self-Study Problem 7.04 During the period from 2011 through 2015 the annual returns on small U.S. stocks were -3.80 percent, 19.15 percent, 45.91 percent, 3.26 percent, and -3.80 percent, respectively. the end of 2015? (Round answer to What would a $1 investment, made at the beginning of 2011, have been worth decimal places, e.g. 52.750.) Value in 2015 What average annual return would have been earned on this investment? (Round answer to 2 decimal places, e.g. 52.75.) Average annual return percent per year. Open Show Work Click if you would like to Show Work for this question: Self-Study Problem 7.01 Sheridan made a friendly wager with a colleague that involves the result from flipping a coin. If heads comes up, Sheridan must pay her colleague $16; otherwise, her colleague will pay Sheridan $16. What Sheridan's expected cash flow, and what is the variance of that cash flow if the coin has equal probability of coming up heads or tails? (Round answers to 2 decimal places, e.g. 52.75.) Expected cash flow Cash flow variance Suppose Sheridan's colleaque willing to handicap the bet by paving her $21 if the coin toss results in tails, If everything else remains the same, what are Sheridan's expected cash flow and the variance of that cash flow? Expected cash flow Cash flow variance Open Show Work Click you would like to Show Work for this question:

Answer 1

Answer 1 = Investment Value = $1.66

Answer 2 = Annual Average Return = 12.144%

Answer 3 = Expected Cash flow = $0

Answer 4 = Variance = 128

Answer 5 = Expected Cash flow = $2.50

Answer 6 = Variance = 171.13

For detailed workings, please refer the screenshots below.

Clipboard Font fo B33 A 13 Value of $1 investment in 2015 Investment Value 14 Year Return 15 Beginning 1 16 2011 -3.8 0.96 17 2012 19.15 1.15 18 2013 45.91 1.67 19 2014 3.26 1.73 20 2015 -3.8 1.66 Average Annual 21 Return 12.144 22 22

Function Library D14 A B 13 Value of $1 investment Investment Value 14 Year Return 15 Beginning =C15* ((100+B16)/100) - C16* ( (100+B17)/100) - C17* ( (100+B18 ) /100) C18* (100+B19)/100) -C19*(100+B20)/100) 16 2011 -3.8 17 2012 19.15 45.91 18 2013 19 2014 3.26 20 2015 -3.8 21 Average Annual Return -AVERAGE(B16:B20) 222

Time Reference & Trig Functions Function Used Function Library fCashflow A7 A C E F 1 Expected Standard Square of 2 Cashflow Probability Cahflow Deviation Standard 16 0.5 4 -16 0.5 -8 -8 11.31 0 128 Square of Standard Expected 7 Cashflow Probability Cahflow Standard Deviation Deviation Variance 8 21 0.5 10.5 10.5 -16 0.5 8 -8 10 2.5 13.08 171.13 11 12 et nD

Function Library Formula Auditing Defined Names Cashflow AZ A P C E 1 Square of Standard Probability 2 Cashflow Expected Cahflow Standard Deviation Deviation Variance 0.5 -A3* B3 3 16 8 -16 0.5 -A4*B4 4 -8 -STDEV (E3: E4) - E5*E5 -SUM(C3:C4) 5 6 Square of Standard 7 Cashflow Probability Cahflow eviation on Variano Stand Dev 8 21 -A8*B8 0.5 10.5 -16 0.5 -A9*B9 -8 - E10*E10 10 -SUM(C8:C9) =STDEV(E8:E9) 11