Question

# A stock has had the following year-end prices and dividends: Year     Price Dividend 1 \$ 63.40...

 A stock has had the following year-end prices and dividends:
 Year Price Dividend 1 \$ 63.40 - 2 70.20 \$ .85 3 79.18 .95 4 75.32 1.03 5 84.18 1.11 6 98.62 1.20
 What are the arithmetic and geometric average 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.)

Return = [P1 - P0 + D] / P0

R1 = [\$70.20 - \$63.40 + \$0.85] / \$63.40 = 12.07%

R2 = [\$79.18 - \$70.20 + \$0.95] / \$70.20 = 14.15%

R3 = [\$75.32 - \$79.18 + \$1.03] / \$79.18 = -3.57%

R4 = [\$84.18 - \$75.32 + \$1.11] / \$75.32 = 13.24%

R5 = [\$98.62 - \$84.18 + \$1.20] / \$84.18 = 18.58%

A.M. = [Ri] / n = [12.07% + 14.15% - 3.57% + 13.24% + 18.58%] / 5 = 54.45% / 5 = 10.89%

G.M. = [(1 + R1) x (1 + R2) x ----- x (1 + RN)]1/N

= [1.1207 x 1.1415 x 0.9643 x 1.1324 x 1.1858]1/5 = [1.6562]0.2 - 1 = 1.1062 - 1 = 0.1062, or 10.62%