Question 7 (of 10) Save & Exit Submit value 10.00 points A stock has had the fol

Question

Question 7 (of 10) Save & Exit Submit value 10.00 points A stock has had the following year-end prices and dividends Year Price Dividend 164.23_ 71.10 $.58 76.90 63 63.1769 78 78.75 85 72.91 What are the arithmetic and geometric returns for the stock? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Arithmetic average return Geometric average return References Worksheet Learning Objective: 10-01 Calculate the return on an Difficulty: 2 Intermediate Section: 10.5 More On Average Returns Check my work

Explanation / Answer

Return 1 = (71.10 - 64.23 + 0.58)/ 64.23 = 0.1160 or 11.60%

Return 2 = (76.90 - 71.10 + 0.63 )/ 71.10 = 0.0904 or 9.04%

Return3 = (63.17 - 76.90 + 0.69 ) / 76.90 = -0.1696 or -16.96%

Return4 = (72.91 - 63.17 + 0.78) / 63.17 = 0.1665 or 16.65%

Return5 = (78.75 - 72.91 + 0.85) / 72.91 = 0.0918 or 9.18%

Arthematic average return = [0.1160 + 0.0904 - 0.1696 + 0.1665 + 0.0918] / 5

= 0.05902 or 5.902%

Geometric average return = [(1+0.1160)(1+0.0904)(1-0.1696)(1+0.1665)(1+0.0918)]1/5 -1

= [1.1160 * 1.0904 * 0.8304 * 1.1665 * 1.0918]0.2 - 1

= [1.2870]0.2 - 1

= 0.0518 or 5.18%.

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