(Solving a comprehensive problem) Use the end-of-year stock price data in the popup window, to answer the following questions for the Harris and Pinwheel companies. a. Compute the annual rates of return for each time period and for both firms. b. Calculate both the arithmetic and the geometric mean rates of return for the entire three-year period using your annual rates of return from part a. (Note: you may assume that neither firm pays any dividends.) c. Compute a three-year rate of return spanning the entire period (i.e., using the ending price for period 1 and ending price for period 4). d. Since the rate of return calculated in part c is a three-year rate of return, convert it to an annual rate of return by using the following equation: -)-(.* e. How is the annual rate of return calculated in part d related to the geometric rate of return? When you are evaluating the performance of an investment that has been held for several years, what Time Value of Harris Stock $11 Annual Rate of Return Three-Year Rate of Return Value of Pinwheel Stock $18 Annual Rate of Return Annual Rate of Return
(Solving a comprehensive problem) Use the end-of-year stock price data in the popup window, to answer the following questions for the Harris and Pinwheel companies. a. Compute the annual rates of return for each time period and for both firms. b. Calculate both the arithmetic and the geometric mean rates of return for the entire three-year period using your annual rates of return from part a. (Note: you may assume that neither firm pays any dividends.) c. Compute a three-year rate of return spanning the entire period (i.e., using the ending price for period 1 and ending price for period 4). d. Since the rate of return calculated in part c is a three-year rate of return, convert it to an annual rate of return by using the following equation: -)-(.* e. How is the annual rate of return calculated in part d related to the geometric rate of return? When you are evaluating the performance of an investment that has been held for several years, what Time Value of Harris Stock $11 Annual Rate of Return Three-Year Rate of Return Value of Pinwheel Stock $18 Annual Rate of Return Annual Rate of Return
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:D
(Solving a comprehensive problem) Use the end-of-year stock price data in the popup window, E, to answer the following questions for the Harris and Pinwheel companies.
a. Compute the annual rates of return for each time period and for both firms.
b. Calculate both the arithmetic and the geometric mean rates of return for the entire three-year period using your annual rates of return from part a. (Note: you may assume that neither firm pays
any dividends.)
c. Compute a three-year rate of return spanning the entire period (i.e., using the ending price for period 1 and ending price for period 4).
d. Since the rate of return calculated in part c is a three-year rate of return, convert it to an annual rate of return by using the following equation:
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e. How is the annual rate of return calculated in part d related to the geometric rate of return? When you are evaluating the performance of an investment that has been held for several years, what
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Value of
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Transcribed Image Text:b. The arithmetic average rate of return earned by investing in Harris stock over this period is %. (Round to two decimal places.)
The arithmetic average rate of return earned by investing in Pinwheel stock over this period is%. (Round to two decimal places.)
The geometric average rate of return earned by investing in Harris stock over this period is %. (Round to two decimal places.)
The geometric average rate of return earned by investing in Pinwheel stock over this period is %. (Round to two decimal places.)
c. The three-year rate of return spanning the entire period for Harris is %. (Round to two decimal places.)
The three-year rate of return spanning the entire period for Pinwheel is %. (Round to two decimal places)
d. The annual rate of retum converted from the three-year rate in part e for Harris is
The annual rate of retum converted from the three-year rate in part e for Pinwheel is
%. (Round to two decimal places)
%. (Round to two decimal places)
e. How is the annual rate of return calculated in part d related to the geometric rate of return? (Select the best choice below)
OA. The annual rate of return calculated in part d is nothing but the geometric average rate of return calculated in a different way
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