Consider the rate of return of stocks ABC and XYZ. a. Calculate the arithmetic average return on
Consider the rate of return of stocks ABC and XYZ.
a. Calculate the arithmetic average return on these stocks over the sample period.
b. Which stock has greater dispersion around the mean?
c. Calculate the geometric average returns of each stock. What do you conclude?
d. If you were equally likely to earn a return of 20%, 12%, 14%, 3%, or 1%, in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? What if the five possible outcomes were those of stockXYZ?
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...
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