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Ted McGovern works in the economics branch of a government bank regulator. When he arrives at work this morning and checks his voicemail, he has a message from the Regional Director asking him to calculate the expected rate of return for a stock market series. More detailed information will be forthcoming in an e-mail. Fortunately, McGovern still has his CFA Program study guides in his office and finds the correct formulas. McGovern logs on to the computer network and downloads an attachment that contains the following estimates:
Overall Assumptions:
Index Estimates – Bull Market:
Index Estimates – Bear Market:
The expected return on the index is closest to:
Suggested Answer: C
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29 comments · newest first
VA
Vanda
10 months ago
Not sure how they came up with those numbers, feels off to me.
WA
Walker
11 months ago
I’d go with 67.4%, seems reasonable based on historical data.
AM
Amber
11 months ago
98.2%? That seems way too high, right?
IL
Ilda
11 months ago
I think 39.4% sounds about right for a solid estimate!
OR
Oretha
11 months ago
The expected return on the index is usually around 30% in a bull market.
GI
Gilbert
11 months ago
I have a hunch that the answer is closer to the higher percentages, but I need to double-check the calculations for bull vs. bear market returns.
AL
Alishia
12 months ago
I think the expected return is based on probabilities of each market scenario, but I’m a bit confused about how to weigh them correctly.
LE
Lennie
12 months ago
This question feels familiar; I think we practiced something similar in our study group. I just can't recall the exact formula we used.
ST
Stevie
12 months ago
I remember calculating expected returns using weighted averages, but I'm not sure how to apply it here with both bull and bear market estimates.
BU
Bulah
12 months ago
This seems like a tricky one. There are a lot of different numbers and assumptions to keep track of. I better take my time and double-check my work to make sure I don't miss anything important.
VO
Von
1 year ago
Hmm, I'm a bit unsure about how to handle the bull and bear market estimates. Do I need to weight them somehow or just take the average? I'll have to review the relevant formulas to make sure I'm approaching this correctly.
SH
Shaniqua
1 year ago
This looks like a straightforward expected return calculation based on the bull and bear market estimates provided. I should be able to apply the formulas from my CFA study guides to find the correct answer.
DI
Dion
1 year ago
Okay, I think I've got this. I'll need to calculate the expected return for the bull and bear markets separately, then combine them based on the overall assumptions. As long as I plug the numbers in correctly, I should be able to arrive at the right answer.
HA
Harrison
1 year ago
Hmm, this seems straightforward. I'll need to think about how rounding works and what the "specified unit" means.
GL
Glory
2 years ago
I'm feeling a bit bearish on this one. 30.8% sounds about right to me. Time to break out the CFA study guides, just like good ol' Ted.
NI
Nieves
2 years ago
I'm leaning towards 67.4%, but I'll double-check the calculations.
VI
Viola
2 years ago
I think it's closer to 39.4%, but I could be wrong.
RA
Ramonita
2 years ago
I agree, 30.8% seems like a reasonable estimate.
CA
Carey
2 years ago
Whoa, 98.2%? That's more like a bull market on steroids! I'm going with the more realistic answer, B.
AN
Antonio
2 years ago
Let's go with B then. It seems like the safer bet.
LE
Leah
2 years ago
Yeah, I also think B is the better choice. 98.2% does sound too good to be true.
DA
Dahlia
2 years ago
I agree, 98.2% seems too high. I think B, 39.4%, is more realistic.
MA
Margarett
2 years ago
I see your point, but I still think A) 67.4% makes more sense based on the estimates provided.
HA
Halina
2 years ago
I disagree, I believe the correct answer is C) 30.8%.
MA
Marylin
2 years ago
Hmm, let's see. The expected return on the index is closest to 39.4%. Gotta love those bear market estimates, am I right?
EL
Elza
2 years ago
C) Definitely, those bear market estimates can be tough to swallow.
RE
Rebbecca
2 years ago
B) Yeah, I agree. 39.4% sounds more realistic.
CA
Carman
2 years ago
A) 67.4% seems too high for a bear market.
MA
Margarett
2 years ago
I think the answer is A) 67.4%.