(calculating the geometric and arithmetic average rate of return) The common sto

Question

(calculating the geometric and arithmetic average rate of return) The common stock of the Brangus Cattle Company had the following end-of-year stock prices over the last five years and paid no cash dividends:

a. Calcuate the annual rate of return for each year from teh above information ndof year 2, end of year 3, end of year 4 is, end of year 5 is %.
b. What is the arithmetic average rate of return earned by investing in Brangus Cattle Company's stock over this period?
c. The geometic average rate of return of earned by investing in Brangus Cattle Company's stock over this period?
D. which type of aveage rate of return best describes teh average annual rate of return earned over the period (arithmetic or geometric) Why?

Time Brangus cattle Company 1 $16 2 12 3 13 4 22 5 28

Explanation / Answer

d. Since share prices are not stable and fluctuating heavily ,arithmetic average will be good method for average annual rate of return calculation

Time Brangus cattle Company ARR% 1 16 2 12 22 3 13 32.33333 4 22 46.5 5 28 68.6 total ARR 169.4333 B. arithmetic average rate o return 84.71667 c. Geometric mean 1506.347

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