Question

Q1) A stock earned annual returns of 5%, 10%, -7%, and 16% for the last four years.

a) What is the arithmetic average return for the stock over the last four years?

b) What is the standard deviation of the returns over the last four years?

c) What is the geometric average return for the stock over the last four years?

d) What is the holding period return for the stock over the last four years?

e) What would have been the holding period return for the stock if it had earned the arithmetic average return every year for the last four years?

f) What would have been the holding period return for the stock if it had earned the geometric average return every year for the last four years?

g) Compare your answers for the holding period returns in parts (e) and (f) with the actual holding period return in part (d) and comment on which average (arithmetic or geometric) is the better indicator of longer-term returns.

Answer #1

Year |
Stock's
Return |

1 | 5% |

2 | 10% |

3 | -7% |

4 | 16% |

**a) Arithematic Average** = (5 + 10 - 7 +16) / 4
**= 6%**

**b) Standard Deviation**

**c) Geometric Averga:**

Geometric mean cannot be calculated for negative return, as it will be impossible to calculate it's under-root.

**d) Holding Period Return**

HPR = [(1+5%)*(1+10%)*(1-7%)*(1+16%)] =
**24.6%**

AHPR = (1+0.246)^(1/4) - 1 = **5.65%**

**NOTE:** Please ask max 4 subparts in a
question.

The annual returns on the stock of a firm during the last four
years are provided below.
___________________________________
Year Return
___________________________________
2016
–0.10 (or –10%)
2017
0.10 (or 10%)
2018
0.15 (or 15%)
2019
0.25 (or 25%)
__________________________________
a) Find the holding period return of the stock over the
four-year period.
b) Compute the arithmetic average return of the stock over the
four-year period.
c) Calculate the geometric average return of the...

The annual returns on the stock of a firm during the last four
years are provided below.
___________________________________
Year Return
___________________________________
2016
–0.10 (or –10%)
2017
0.10 (or 10%)
2018
0.15 (or 15%)
2019
0.25 (or 25%)
__________________________________
a) Find the holding period return of the stock over the
four-year period.
b) Compute the arithmetic average return of the stock over the
four-year period.
c) Calculate the geometric average return of the...

A stock had returns of 16 percent, 12 percent, 19 percent, 17
percent, 18 percent, and -1 percent over the last six years.
What is the arithmetic return for the stock?
What is the geometric return for the stock?

Marsh Inc. had the following? end-of-year stock prices over the
last five years and paid no cash? dividends:
Time Marsh
1 $8
2 $11
3 $17
4 $7
5 $8
a. Calculate the annual rate of return for each
year from the above information.
b. What is the arithmetic average rate of
return earned by investing in? Marsh's stock over this? period?
c. What is the geometric average rate of return
earned by investing in? Marsh's stock over this? period?...

Consider the following five monthly returns. The arithmetic
average monthly return over this period is 1.40% and the geometric
average monthly return over this period is 1.33%. Explain the
difference between the arithmetic average return and the geometric
average return. Are both numbers useful? If so, explain why?
3% -1% 2% 7% -4%
Choose the correct answer below.
Both numbers are useful. The geometric average return tells you
what you would actually make if you held the stock over this...

A stock produced returns of 14 percent, 17 percent, and −10
percent over three of the past four years, respectively. The
arithmetic average for the past four years is 6 percent.
Show you work here (be as detailed and organized as
possible):
What is the missing return (i.e., the return in the fourth
year)?
What is the geometric average return over the four years?
What is the standard deviation of returns of the stock? Show
your work clearly below.

Ten annual returns are listed in the following table: -19.5%
16.3% 17.9% -49.3% 43.5% 1.6% -16.7% 46.2% 44.8% -3.4%
a. What is the arithmetic average return over the 10-year
period?
b. What is the geometric average return over the 10-year period?
The geometric average return over the 10-year period is (round to
4 decimal places)
c. If you invested $100 at the beginning, how much would you have
at the end? (round to four decimal places)

A stock has had returns of 12 percent, 19 percent, 21 percent,
21 percent, -12 percent, 26 percent, and -5 percent over the last
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What are the arithmetic and geometric returns for the stock? (Do
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percent rounded to 2 decimal places.)
a.) Arithmetic return?
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−19.8 %
16.1 %
17.9 %
−49.9 %
43.9 %
1.1 %
−16.9 %
45.6 %
44.8 %
−3.5 %
a. What is the arithmetic average return over the 10-year
period? (Round to four decimal places.)
b. What is the geometric average return over
the 10-year period? (Round to four decimal places.)
c. If you invested $100 at the beginning, how
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Given that the annual returns on your $10,000 investment in your
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