Suppose you begin year 1 with $5000. At the beginning of each year, you put half of your money under a mattress and invest the other half in Whitewater stock. During each year, there is a 50% chance that the Whitewater stock will double, and there is a 50% chance that you will lose half of your investment. To illustrate, if the stock doubles during the first year, you will have $3750 under the mattress and $3750 invested in Whitewater during year 2. You want to estimate your annual return over a 30-year period. If you end with F dollars, your annual return is (F/5000)1/30– 1. For example, if you end with $100,000, your annual return is 201/30– 1 = 0.105, or 10.5%. Run 1000 replications of an appropriate simulation. Based on the results, you can be 95% certain that your annual return will be between which two values?
Already registered? Login
Not Account? Sign up
Enter your email address to reset your password
Back to Login? Click here