Consider the rate of return of stocks ABC and XYZ. Year rABC ΙΧΥΖ 12345 20% 30% 12 12 14 18 3 0 1 -10 Required: a. Calculate the arithmetic average return on these stocks over the sample period. Arithmetic Average ГАВС ΓΧΥΖ 10% 15% b. Which stock has greater dispersion around the mean return? ABC XYZ c. Calculate the geometric average returns of each stock. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. ГАВС P Geometric Average % 0/ ГАВС ΓΧΥΖ Geometric Average % % . 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? Note: Do not round intermediate calculations. Expected rate of return % . What if the five possible outcomes were those of stock XYZ? Expected rate of return % Given your answers to (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance? Geometric ○ Arithmetic

Consider the rate of return of stocks ABC and XYZ. Year rABC ΙΧΥΖ 12345 20% 30% 12 12 14 18 3 0 1 -10 Required: a. Calculate the arithmetic average return on these stocks over the sample period. Arithmetic Average ГАВС ΓΧΥΖ 10% 15% b. Which stock has greater dispersion around the mean return? ABC XYZ c. Calculate the geometric average returns of each stock. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. ГАВС P Geometric Average % 0/ ГАВС ΓΧΥΖ Geometric Average % % . 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? Note: Do not round intermediate calculations. Expected rate of return % . What if the five possible outcomes were those of stock XYZ? Expected rate of return % Given your answers to (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance? Geometric ○ Arithmetic

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 6P: The market and Stock J have the following probability distributions: a. Calculate the expected rates...

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