Question

The annual return on an S&P 500 index mutual fund over the next 40 years has...

The annual return on an S&P 500 index mutual fund over the next 40 years has a normal distribution

with expected value of 10% and standard deviation of 22%. What is the expected ending value of

$10,000 invested in the mutual fund? What would happen to the expected terminal wealth if the

standard deviation were 30%? (show answer in excel)

Homework Answers

Answer #1
Rate Mean Return 10%
Nper Number of years 40
Pv Investment $10,000
FV Expected Terminal Wealth $452,593 (Using FV function of excel withRate=10%, Nper=40, Pv=-10000)
Excel command: FV(10%,40,,-10000)
If the standard deviation changes, the expected terminal wealth will remain the same
But the Variation of terminal wealth will increase with increase in Standard Deviation
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