Taking Uncertainty Into Account In Projecting
& Textile Sciences Department, Ohio State University
Hopewell (1997) called for greater attention
by financial planners to uncertainty. This paper provides a unique approach
to dealing with the uncertainty of projecting stock accumulations. The
standard approach is to take mean rates of return in projecting portfolio
growth, with perhaps a separate discussion of the range of possible rates
of return (e.g., Mittra, 1995, p. 394). This paper provides a mean/worst
case approach that can be made understandable to clients. For accumulation
projections with a horizons of 10-15 years, the worst case projections
might be intimidating, as the worst case accumulations are less than 30%
of the mean accumulation for most horizons. However, the worst case projections
may serve to adequately inform clients of the range of possible outcomes.
table from the paper (In HTML format.)
NOTE: You can view and print the 3/98 version of the paper, presented
at the Midwest Finance Association in March, 1998.
in Acrobat format
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