George Rice is reviewing the performance of the portfolio that he has held for the past five years. He has decided to compare his portfolio returns with the market returns measured by the S&P 500 Index. The market values of his portfolio and the S&P 500 Index from 2005 through 2010 are given in the following table:

End of Year Portfolio Value S&P 500 Index

2005.........................$17,000.00.......................1248

2006...........................20,400.00.......................1418

2007...........................22,440.00.......................1468

2008...........................23,562.00........................902

2009...........................27,096.30.......................1117

2010...........................37,934.82.......................1258

a. Compute the annual return for both the portfolio and the market.

b. Compute the simple arithmetic average return for both the portfolio and the market.

c. Compute the geometric average return for both the portfolio and the market.

d. Explain why the simple arithmetic average return is greater than the geometric average return for both the portfolio and the market.

e. Evaluate the performance of George's portfolio compared with the market.