stock has had returns of 19.0 percent, 29.0 percent, 24.0 percent, 10.1 percent,
ID: 2651047 • Letter: S
Question
stock has had returns of 19.0 percent, 29.0 percent, 24.0 percent, 10.1 percent, 34.8 percent, and 27.0 percent over the last six years.
Required:
What are the arithmetic and geometric returns for the stock? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)
Arithmetic average return
14.28 %
Geometric average return
%
stock has had returns of 19.0 percent, 29.0 percent, 24.0 percent, 10.1 percent, 34.8 percent, and 27.0 percent over the last six years.
Explanation / Answer
Answer:
Calculation of Arithmetic average return
Year
Return
1
-19%
2
29%
3
24%
4
-10.10%
5
35%
6
27%
Total
85.70%
Arithmetic average return = Total /6
14.28%
Calculation of Geometric average return
Formula = [(1+r1)*(1+r2*…………*(1+rn)]^(1/n) -1
Year
Return (r)
1+r
1
-19%
0.81
2
29%
1.29
3
24%
1.24
4
-10.10%
0.90
5
35%
1.35
6
27%
1.27
Product
1.99
Product ^(1/6)-1
0.12
Geometric average return
12.19%
Calculation of Arithmetic average return
Year
Return
1
-19%
2
29%
3
24%
4
-10.10%
5
35%
6
27%
Total
85.70%
Arithmetic average return = Total /6
14.28%
Calculation of Geometric average return
Formula = [(1+r1)*(1+r2*…………*(1+rn)]^(1/n) -1
Year
Return (r)
1+r
1
-19%
0.81
2
29%
1.29
3
24%
1.24
4
-10.10%
0.90
5
35%
1.35
6
27%
1.27
Product
1.99
Product ^(1/6)-1
0.12
Geometric average return
12.19%
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