Question

# A stock was trading at \$20.65 at the end of year 1. It was trading at...

A stock was trading at \$20.65 at the end of year 1. It was trading at the end of year 2 at \$20.98 immediately after giving a dividend of \$0.22. At the end of year 3. it was trading at \$20.34 immediately after giving a dividend of \$0.24. Finally, it was trading at \$22.16 at the end of year 4 without giving out any dividend. What was the geometric average annual return of this stock for the three years between years 1 and 4?

Return from stock = (Increase in value of stock + Dividend received) / Value at base year

Return between Year 1 and 2 = ((\$20.98 - \$20.65) + \$0.22) / \$20.65
= 0.0266 or 2.66%

Return between Year 2 and Year 3 = ((\$20.34 - \$20.98) + \$0.24) / \$20.34
= \$ -0.4 / \$20.34
= -0.0197 or -1.97%

Return from Year 3 and Year 4 = ((\$22.16 -\$20.34) +\$0) / \$20.34
= 0.0895 or 8.95%

Geometric average annual return = (Return of Year 1 * Return of Year 2 * Return of Year 3)^(1/3)
= (0.0266 * -0.0197 * 0.0895)^(1/3)
= -0.0361 or -3.61%

#### Earn Coins

Coins can be redeemed for fabulous gifts.