# Question

Caswell Enterprises had the following end-of-year stock prices over the last five years and paid no cash dividends:

Time Caswell

1 ........ $10

2 ........ 15

3 ........ 12

4 ........ 9

5 ........ 10

a. Calculate the annual rate returns for each year from this information.

b. What is the arithmetic average rate of return earned by investing in Caswellâ€™s stock over this period?

c. What is the geometric average rate of return earned by investing in Caswellâ€™s stock over this period?

d. Considering that the beginning and ending stock prices for the five-year period are the same, which type of average rate of return best describes the average annual rate of return earned over the period (the arithmetic or geometric)?

Time Caswell

1 ........ $10

2 ........ 15

3 ........ 12

4 ........ 9

5 ........ 10

a. Calculate the annual rate returns for each year from this information.

b. What is the arithmetic average rate of return earned by investing in Caswellâ€™s stock over this period?

c. What is the geometric average rate of return earned by investing in Caswellâ€™s stock over this period?

d. Considering that the beginning and ending stock prices for the five-year period are the same, which type of average rate of return best describes the average annual rate of return earned over the period (the arithmetic or geometric)?

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