Consider the rate of return of stocks ABC and XYZ. Year ГАВС ΓΧΥΖ 1 20% 30% 2 12% 12% 3 14% 18% 4 3% 5 1% 0% -10% Required: a. Calculate the arithmetic average return on these stocks over the sample period. b. Which stock has greater dispersion around the mean return? c. Calculate the geometric average returns of each stock. What do you conclude? d. If you were equally likely to earn a return of 20%, 12%, 14%, 3%, or 1% in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? e. What if the five possible outcomes were those of stock XYZ? f. Given your answers to parts (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E Required F Calculate the geometric average returns of each stock. What do you conclude? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Geometric Average ABC 9.51% XYZ 8.01%
Consider the rate of return of stocks ABC and XYZ. Year ГАВС ΓΧΥΖ 1 20% 30% 2 12% 12% 3 14% 18% 4 3% 5 1% 0% -10% Required: a. Calculate the arithmetic average return on these stocks over the sample period. b. Which stock has greater dispersion around the mean return? c. Calculate the geometric average returns of each stock. What do you conclude? d. If you were equally likely to earn a return of 20%, 12%, 14%, 3%, or 1% in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? e. What if the five possible outcomes were those of stock XYZ? f. Given your answers to parts (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E Required F Calculate the geometric average returns of each stock. What do you conclude? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Geometric Average ABC 9.51% XYZ 8.01%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Consider the rate of return of stocks ABC and XYZ.
Year
ГАВС
ΓΧΥΖ
1
20%
30%
2
12%
12%
3
14%
18%
4
3%
5
1%
0%
-10%
Required:
a. Calculate the arithmetic average return on these stocks over the sample period.
b. Which stock has greater dispersion around the mean return?
c. Calculate the geometric average returns of each stock. What do you conclude?
d. If you were equally likely to earn a return of 20%, 12%, 14%, 3%, or 1% in each year (these are the five annual returns for stock ABC),
what would be your expected rate of return?
e. What if the five possible outcomes were those of stock XYZ?
f. Given your answers to parts (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for
predicting future performance?
Answer is complete but not entirely correct.
Complete this question by entering your answers in the tabs below.
Required A Required B Required C
Required D Required E
Required F
Calculate the geometric average returns of each stock. What do you conclude?
Note: Do not round intermediate calculations. Round your answers to 2 decimal places.
Geometric Average
ABC
9.51%
XYZ
8.01%
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