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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

Essentials Of Investments
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
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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/
Transcribed Image Text: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
Transcribed Image Text: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
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