a. Compute the annual rates of return for each time period and for both firms. b....
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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: Three-Year Rate of Return 1+ Annual Rate of Return 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 type of average rate of return (arithmetic or geometric) should you use? Why? a. Enter the annual rate of return for each year for Harris in the table below. (Round to two decimal places.) Value of Harris Stock Annual Rate of Return Time 1 $12 2 6 3 4 11 14 Value of Pinwheel Stock Annual Rate of Return $19 % 36 % 29 25 Enter the annual rate of return for each year for Pinwheel in the table below. (Round to two decimal places.) Value of Harris Stock Annual Rate of Return Time 1 $12 2 6 3 11 4 14 - 50.00% 83.33% 27.27% Value of Pinwheel Stock $19 36 29 25 Annual Rate of Return % % 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.) 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: Three-Year Rate of Return 1+ Annual Rate of Return 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 type of average rate of return (arithmetic or geometric) should you use? Why? a. Enter the annual rate of return for each year for Harris in the table below. (Round to two decimal places.) Value of Harris Stock Annual Rate of Return Time 1 $12 2 6 3 4 11 14 Value of Pinwheel Stock Annual Rate of Return $19 % 36 % 29 25 Enter the annual rate of return for each year for Pinwheel in the table below. (Round to two decimal places.) Value of Harris Stock Annual Rate of Return Time 1 $12 2 6 3 11 4 14 - 50.00% 83.33% 27.27% Value of Pinwheel Stock $19 36 29 25 Annual Rate of Return % % 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.)
Expert Answer:
Answer rating: 100% (QA)
a To compute the annual rates of return for each time period for both Harris and Pinwheel stocks we can use the following formula Annual Rate of Retur... View the full answer
Related Book For
Financial Management Principles and Applications
ISBN: 978-0133423822
12th edition
Authors: Sheridan Titman, Arthur Keown, John Martin
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