You begin year 1 with $500. At the beginning of each year, you put half of your money under your mattress and invest the other half in Whitewater stock. During each year, there is a 50% chance that...


You begin year 1 with $500. At the beginning of each year, you put half of your money under your 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 $375 under the mattress and $375 invested in Whitewater during year 2. You want to estimate your annual return over a 50-year period. If you end with F dollars, then your annual return is (F/500)1/50
-1. For example, if you end with $10,000, your annual return is 201/50  -1 =  0.062, or 6.2%. Run 1000 replications of an appropriate simulation. Based on the results, you can be 95% certain that your annual return will be between what two values?



May 25, 2022
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