A stock has had the following year-end prices and dividends: Year Price Dividend

ID: 2758050 • Letter: A

Question

A stock has had the following year-end prices and dividends: Year Price Dividend 1 $ 65.03 — 2 71.90 $ 0.74 3 77.70 0.79 4 63.97 0.85 5 74.51 0.94 6 86.75 1.01 Required: What are the arithmetic and geometric returns for the stock? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Arithmetic average return 8.01 % Geometric average return 6.92 %.

What's in bold are my answers. I got Arithmetic Average return right but Geometric wrong.

Explanation / Answer

year

Price

Dividend

65.03

71.9

0.74

77.7

0.79

63.79

0.85

74.51

0.94

86.75

1.01

R1=(71.90-65.03+0.74)/65.03=0.117022913

R2=(77.70-71.9+0.79)/71.90=0.091655076

R3=(63.79-77.70+0.85)/77.70=-0.168082368

R4=(74.51-63.79+0.94)/63.79=0.182787271

R5=(86.75-74.51+1.01)/74.51=0.177828479

Artthematic:

RA=( 0.1170 +0.0917 +(0.1681)+ 0.1828+0.1778 )/5= 0.0802 or 8.01%

Geometric

RG=[(1+ 0.1170)(1 +0.0917)(1-0.1681)(1+0.1828)(1+0.1778 )1/5]-1

Rg=[1.413222273]1/5-1

Rg=6.92%