# Question

The common stock of the Brangus Cattle Company had the following end-of-year stock prices over the last five years and paid no cash dividends:

Time Brangus Cattle Company

1 ............ $15

2 ............ 10

3 ............ 12

4 ............ 23

5 ............ 25

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

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

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

d. Which type of average rate of return best describes the average annual rate of return earned over the period (the arithmetic or geometric)? Why?

Time Brangus Cattle Company

1 ............ $15

2 ............ 10

3 ............ 12

4 ............ 23

5 ............ 25

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

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

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

d. Which type of average rate of return best describes the average annual rate of return earned over the period (the arithmetic or geometric)? Why?

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