Reading 19 Section 4 Prob-wtd return vs Exp. return
To illustrate, assume that a portfolio associated with a goal has an expected return of 7% with 10% expected volatility and the investor has indicated that the goal is to be met over the next five years with at least 90% confidence. Over the next five years, that portfolio is expected to produce returns of 35% with a volatility of 22.4%.25 In short, this portfolio is expected to experience an average compound return of only 1.3% per year over five years with a probability of 90%; this result is quite a bit lower than the portfolio’s average 7% expected return (see Exhibit 34).
Does anyone know how the reading is calculating this 1.3% number? I don’t really understand the section & what the reading is trying to get at
Study together. Pass together.
Join the world's largest online community of CFA, CAIA and FRM candidates.