During a major market crash, the average loss on an equity portfolio is 54%. In the...
During a major market crash, the average loss on an equity portfolio is 54%. In the two to three years following, the recovery generates an average return of 193%. If you avoid panic and hold your position throughout, what is your total return for the holding period from start to finish?
Remember, returns compound.
Enter answer in percents.
Homework Answers
Let beginning investment be 100.
During market crash, we lose 54% and value of investment becomes 46.
In two to three years, we generate a return of 193% or 88.78 on 46 and our ending value becomes 134.78.
Therefore, HPR = (134.78 - 100)/100 = 34.78%.
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