Question

Which investment type has had the greatest return since 1925? Which has had the lowest return? Compare and contrast the two investments. Specifically, discuss the standard deviation.

Answer 1

The greatest return was provided by equities while debt instrument had the lowest return since 1925.

The equities has a larger standard deviation so this instrument was considered risky. Since this was riskier product, the expected return was also high and so over a period of 80+ years it gave a high return.

The debt had a lower standard deviation and return was consistent. So this instrument is not considered risky and expected return is comparitively low. So over a period of 80+ years, it did not give a very high return.