Marsh Inc. had the following end-of-year stock prices over the last five years and paid no cash
Question:
Marsh Inc. had the following end-of-year stock prices over the last five years and paid no cash dividends:
Time __________________________ __Marsh
1 ............................................ $10
2 ............................................12
3 ............................................18
4 ............................................ 7
5 ............................................10
a. Calculate the annual rates of return for each year from this 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 that 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?
Step by Step Answer:
a We can find Marsh Incs annual returns using equation 72 For example using the first two prices we have Rate of return The table below finds the next ...View the full answer
Financial Management Principles and Applications
ISBN: 978-0134417219
13th edition
Authors: Sheridan Titman, Arthur J. Keown, John H. Martin
