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Question $4,$ P$7-8($similar to$)$

HW Score: $24\%,1\mathrm{.}2$ of $5$ points

Part $1$ of $7$

Points: $0$ of $1$

$($Related to Checkpoint $7\mathrm{.}2)($Calculating the geometric and arithmetic average rate of return$)$ Marsh Inc. had the following end$-$of$-$year stock prices over the five years and paid no cash dividends:

$\backslash$table$[[$Time$,$Marsh$],[1,$$$10$

ework

Question $5,$ P$7-10($similar to$)$

HW Score: $44\%,2\mathrm{.}2$ of $5$ points

Part $1$ of $12$

$()$ Points: $0$ of $1$

$($Solving a comprehensive problem$)$ Use the end$-$of$-$year stock price data in the popup window, $,$ to answer the following questions for the Harris and Pinwheel companies.

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:

$(1+[$ Three$-$Year $],[$ Rate $of$ Return $])=(1+[$ Annual Rate $],[of$ Return $]{)}^3$

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?

$\backslash$table$[[$Time$,\backslash$table$[[$Value of$],[$Harris Stock$]],\backslash$table$[[$Annual Rate$],[$of Return$]],\backslash$table$[[$Value of$],[$Pinwheel Stock$]],\backslash$table$[[$Annual Rate$],[$of Return$]]],[1,$$$12,,$$$17,],[2,6,\%,32,]]$