Consider the rate of return of stocks ABC and XYZ. Year r ABC r XYZ 1 23
Question:
Consider the rate of return of stocks ABC and XYZ.
Year | rABC | rXYZ | |||||||||
1 | 23 | % | 40 | % | |||||||
2 | 12 | 10 | |||||||||
3 | 17 | 17 | |||||||||
4 | 3 | 0 | |||||||||
5 | 2 | −10 | |||||||||
a. Calculate the arithmetic average return on these stocks over the sample period. (Round your answers to 2 decimal places.)
b. Which stock has greater dispersion around the mean return?
multiple choice 1
XYZ
ABC
c. Calculate the geometric average returns of each stock. What do you conclude? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
d. If you were equally likely to earn a return of 23%, 12%, 17%, 3%, or 2% in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round intermediate calculations.)
e. What if the five possible outcomes were those of stock XYZ?
f. Given your answers to parts (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance?
multiple choice 2
Arithmetic
Geometric
Accounting What the Numbers Mean
ISBN: 978-1260565492
12th edition
Authors: David Marshall, Wayne McManus, Daniel Viele