08 May 2006

Why 10%

In a comment on the Aplia Econ Blog on Hybrid Cars, I questioned the efficacy of using the 10% annualized rate for measuring the performance of personal investments. Chris Buzzard gives an informative answer...

Very good question! Whenever you conduct financial analysis it is important to question whether you are using the right model and assumptions. You’re right, 10% seems to be the default annual return in finance textbooks and theoretical examples. Oddly enough, professors many years ago argued that was unreasonably high, then during the 90s many professors argued that it was too low. I guess your opinion depends on the context of your situation. So, let’s examine this assumption a little.
Read more, here.

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