d. If you were equally likely to earn a return of 22 %, 10 % , 19 %, 3%, or 1% in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round intermediate calculations.) Expected rate of return % e. What if the five possible outcomes were those of stock XYZ? Expected rate of return Arithmetic Geometric % f. Given your answers to parts (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance?
d. If you were equally likely to earn a return of 22 %, 10 % , 19 %, 3%, or 1% in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round intermediate calculations.) Expected rate of return % e. What if the five possible outcomes were those of stock XYZ? Expected rate of return Arithmetic Geometric % f. Given your answers to parts (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance?
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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Question
Transcribed Image Text:Consider the rate of return of stocks ABC and XYZ.
Year
12345n
ភ្នំឧ១៣៧.
ABC
ABC
XYZ
22%
10
ABC
19
3
1
a. Calculate the arithmetic average return on these stocks over the sample period. (Round your answers to 2 decimal places.)
Arithmetic Average
XYZ
36%
10
17
0
-8
ABC
XYZ
b. Which stock has greater dispersion around the mean return?
%
c. Calculate the geometric average returns of each stock. What do you conclude? (Do not round intermediate calculations. Round
your answers to 2 decimal places.)
Geometric Average
%
Transcribed Image Text:d. If you were equally likely to earn a return of 22 %, 10 %, 19 % , 3%, or 1% in each year (these are the five annual returns for stock ABC),
what would be your expected rate of return? (Do not round intermediate calculations.)
Expected rate of return
e. What if the five possible outcomes were those of stock XYZ?
Expected rate of return.
%
Arithmetic
Geometric
%
f. Given your answers to parts (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting
future performance?
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