A company\'s stock price rose 1.8% in 2011, and in 2012, it increased 77.8 a. nb

ID: 3270528 • Letter: A

Question

A company's stock price rose 1.8% in 2011, and in 2012, it increased 77.8

a. nbspa.

20112012.

b. nbspb.

If someone purchased $1,000 of the company's stock at the start of 2011, what was its value at the end of 2012?

c. nbspc.

9.8%.

a. The geometric mean rate of return for the two-year period 20112012 was %?.

(Type an integer or decimal rounded to two decimal places as needed.)

b. If someone purchased $1,000 of the company's stock at the start of 2011, its value at the end of 2012 was $? .

(Round to the nearest cent as needed.)

c. If someone purchased $1,000 of the other company's stock at the start of 2011, its value at the end of 2012 was $?

which is (more or less) than the value from part (b). (Round to the nearest cent as needed.)

a. nbspa.

Compute the geometric mean rate of return for the two-year period

20112012.

(Hint: Denote an increase of 77.8% by 0.778.)

b. nbspb.

If someone purchased $1,000 of the company's stock at the start of 2011, what was its value at the end of 2012?

c. nbspc.

Over the same period, another company had a geometric mean rate of return of

9.8%.

If someone purchased $1,000 of the other company's stock, how would its value compare to the value found in part (b)?

I assume that the value that you have given in the problem statement is 77.8% and not just 77.8

(a)

Geometric mean rate of return = ( (1+0.018)*(1+0.778) )0.5 - 1 = 0.3454 = 34.54 %

(b)

After end of year 2011, the stock value will be: 1000*(1+0.018) = $1018

After end of year 2012, the stock value will be : 1018*(1+0.778) = $1810.004

(c)

After end of year 2011, the stock value will be: 1000*(1+0.098) = $1098

After end of year 2012, the stock value will be : 1098*(1+0.098) = $1205.604

Thus the value will be less than that from part (b)

Hope this helps !

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