Question

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?

d. Considering the beginning and ending stock prices for the? five-year period are the? same, which type of average rate of return? (the arithmetic or? geometric) better describes the average annual rate of return earned over the? period?

a. The annual rate of return at the end of year 2 is _____.?(Round to two decimal? places.)

Answer 1

	Year	Price	Return	1+return
	1	8
	2	11	37.50%	1.38
	3	17	54.55%	1.55
	4	7	-58.82%	0.41
	5	8	14.29%	1.14
		Arithmatic mean	11.88%	1.00
		Geometric mean	0.00%

d) Geometric mean better describes the average rate of return