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Nikitich [7]
2 years ago
8

Ethel is a widow and is approaching 75 years of age. Historically, she has deposited all of her money into her bank savings acco

unt and invested in certificates of deposit (CDs) offered by her bank. The yields from her savings accounts and on CDs have gone down significantly. Ethyl would like a higher yield from her investments than what she is currently achieving so she comes in to see you, an agent at a broker/dealer. Which of the following would be an appropriate investment strategy for Ethyl, given her history and her situation?
[A] Ethel should maintain an appropriate savings balance to cover unforeseen circumstances and continue to invest in CDs, despite her desire for higher yields.

[B] Ethel should maintain an appropriate savings balance to cover unforeseen circumstances and should consider investing in a few large-cap securities that the agent will pick for her.

[C] Ethel should maintain an appropriate savings balance to cover unforeseen circumstances and should consider investment in a balanced mutual fund, which carries lower risk, higher yields than CDs, and the potential for growth.

[D] Ethel should maintain an appropriate savings balance to cover unforeseen circumstances and should consider investment in a corporate securities income fund, comprised of small, mid, and large capitalization corporate bonds and corporate preferred stock.
Business
1 answer:
7nadin3 [17]2 years ago
5 0

Answer: C. Ethel should maintain an appropriate savings balance to cover unforeseen circumstances and should consider investment in a balanced mutual fund, which carries lower risk, higher yields than CDs, and the potential for growth

Explanation:

Given Ethel situation and history, Ethel should maintain an appropriate savings balance to cover unforeseen circumstances.

As a result of her age and due to the fact that she possesses a limited investment experience, there may be too much risk for her if she focuses on large-cap securities

Therefore, she should should consider investment in a balanced mutual fund, which carries lower risk, higher yields than CDs, and the potential for growth.

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<em>Geometric average return</em>

This is compounded annual rate of return which is used to measure the performance of an asset over a certain number of years. It helps to measure the return generated by an investment taking into account the volatility .

Unlike the arithmetic average the geometric average gives an idea of the real rate taking into account of volatility

The formula below

Geometric Return =(1+r1) (1+r2) ...... (1+rn)^1/n

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(1.12× 1.19× 1.21× 0.88× 1.26× 0.95)^(1/6) - 1 =0.09233168

Geometric return =0.0923 × 100= 9.23%

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Average rate of return

<em>The average return is the sum of the returns over the years dividend by the Numbers of returns</em>

Average return = sum of return / No of returns

(12% + 19% + 21% + (12%) + 26% + (5%))/6 =10.17 %

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