1)with reference to a risk averse investors,a risk-free asset will generate a numerical utilty that is: a) same for all individuals b)positive for risk averse investors c) equal to 0 for risk seeking investors correct ans. is a… ok but how is b incorrect…given the equation U=E®-1/2Ax variance…a risk free asset has a variance of 0 .therefore it will always generate a positive utility?? 2)which method is best for caclculating the annualised return of a buy and hold strategy of an investor who has made annual deposits to an account for each of the last 5 yrs? a)geometric mean b) arithmetic mean c) money weighted correct ans. a if the investor deposits some amount in the account each year money weighted return gives a better picture?? thanks
As for question 2, think of coumpounded returns… Then, try to find the constant return that gives the same amount at the end of the 5 years. You’ll see you have to calculate a geometric average.
how so?it clearly says that the guy deposits money into his a/c each year…therefore the money at the beginning of each year will be diff…and thus money weighted return should b used