Use the following end-of-year price data to answer the following questions for the Barris and Carson Companies.

a. Compute the annual rates of return for each time period and for both firms.
b. Calculate both the arithmetic and 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 beginning price for Period 1 and ending price for Period 4).
d. Because 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 type of average rate of return should you use (arithmetic or geometric)?Why?

  • CreatedOctober 31, 2014
  • Files Included
Post your question