Question

A stock had returns of 16 percent, 12 percent, 19 percent, 17 percent, 18 percent, and...

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?
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Answer #1

Arithmetic return = (r1 + r2 + r3 + r4.........rn)/n

where, r is the return in ith year

n is number of years

Arithmetic return = (16+12+19+17+18+(-1))/6

= 81/6

= 13.5%

Geometric return =

Therefore, Geometric return = =

=

= 1.132803-1

= 0.132803 or 13.2803%

Therefore, arithmetic return for the stock is 13.5%, while geometric return is 13.2803%

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