Please answer all control questions. They serve as a test for your understanding of the experiment. After the quiz, you will get one dollar as a reward.
But you can only get the reward of one dollar after finishing the whole hit. If you finished the quiz but you didn't complete the later task, you would earn nothing.
Your task
You and the other five people will act as fund managers. Each of you manages a fund invested by other investors (the experimenter). At the beginning of the experiment, you start with a fund wealth of 300 Points. You have to decide in each of fifteen rounds, what percentage of fund wealth you want to invest at a risk-free rate of 2.5% and the percentage you wish to invest in a stock index. The development of the stock index reflects the price development of a basket of shares and is based on actual historical data. In the last 20 years, this development is characterized by price fluctuations. In this round, the stock index earned a return of 11.0% and has a standard deviation of the returns of 30.2%.
Here are some examples on the likelihood of various return fluctuations of stock index:
In 50 out of 100 cases, the return lies between −9.4% and 31.4%.
In 75 out of 100 cases, the return lies between −23.7% and 45.7%.
In 90 out of 100 cases, the return lies between −38.7% and 60.7%.
In 95 out of 100 cases, the return lies between −48.2% and 70.2%.
Instructions Con’t
In each round you can invest between 0 and 200% of current fund wealth in the stock index. If you invest more than 100% of fund wealth, then the fraction which exceeds 100% is borrowed at the risk-free rate of 2.5%. If you are investing less than 100% of your wealth in the stock index, the amount not invested in the stock index is invested at the risk-free rate of 2.5%.
At the end of each round the actual return of the stock index is randomly determined from the distribution described in the former page and the fund wealth will be calculated according to your investment in the stock index and in the risk-free rate. Note that the stock index return is identical for all group members.
Example 1: Assume your Points are 300, and you decide to allocate a fraction of 50% to the stock index. Thus, the remaining 50% will be allocated to risk-free asset. If the stock index provides a random return number of +10.0%, then fund wealth in the next round will be as follows:
Points from the stock index: (50% allocation * 300 Points) * 10% random number = 15 Points;
Points from the risk-free asset: (50% allocation * 300 Points) * 2.5% fixed payout = 3.75 Points;
Total Points in the subsequent round: 300 previous round’s Points + 15 + 3.75 = 318.75 Points
Example 2: Assume your Points are 300, and you decide to allocate a fraction of 150% to the stock index. Thus, the you have to pay a cost of 2.5% for the amount exceeding 100%. If the stock index provides a random return number of +10.0%, then fund wealth in the next round will be as follows:
Points from the stock index: (150% allocation * 300 Points) * 10% random number = 45 Points;
Points fee from the amount exceeding 100%-allocation: (－50% * 300 Points) * 2.5% costs = －3.75 Points;
Total Points in the subsequent round: 300 previous round’s Points + 45 － 3.75 = 341.25 Points
Payment
At the end of the experiment, your final Points (your Points at the end of round 20) will be the 25% of the final fund wealth:
Your final Points = 0.25 * final fund wealth.
These Points will be converted into real money (100 Points = 1 Dollar).
1. In a round, the fund wealth is 600 Points. You allocate 80% of thefund wealth to the stock index. At the end of the round, the random return number of the stock index is 15%. What is (add the minus sign if the number is negative/loss):
{% formfield player.quiz3_1 %} {% formfield player.quiz3_2 %} {% formfield player.quiz3_3 %}2. Fund wealth is carried over from one round to the next. For example, if the fund wealth is 330 Points at the end of round 1, the fund wealth you can allocate in round 2 will be 330 Points.
{% formfield player.quiz1 %}3. At the end of the experiment (at the end of round 20), the fund wealth is 1500 Points. What is:
{% formfield player.quiz5_1 %} {% formfield player.quiz5_2 %}4. In a round, the fund wealth is 900 Points. You allocate 40% of the fund wealth to the stock index. At the end of the round, the random return number of the stock index is －5%. What is (add the minus sign if the number is negative/loss):
{% formfield player.quiz2_1 %} {% formfield player.quiz2_2 %} {% formfield player.quiz2_3 %}5. In a round, the fund wealth is 1200 Points. You allocate 150% of the fund wealth to the stock index. At the end of the round, the random return number of the stock index is 10%. What is (add the minus sign if the number is negative/loss):
{% formfield player.quiz4_1 %} {% formfield player.quiz4_2 %} {% formfield player.quiz4_3 %} {% next_button %} {% endblock %}