a. Compute the annual rates of return for each time period and for both firms. b. Calculate
Question:
a. Compute the annual rates of return for each time period and for both firms.
b. Calculate both the arithmetic and the geometric mean rates of return for the entirethree-year period using your annual rates of return from part a. (Note: you may assume that neither firm pays anydividends.)
c. Compute athree-year rate of return spanning the entire period(i.e., using the ending price for period 1 and ending price for period4).
d. Since the rate of return calculated in part c is athree-year rate ofreturn, convert it to an annual rate of return by using the followingequation:
1+Three-YearRateofReturn=1+AnnualRateofReturn3
e. How is the annual rate of return calculated in part d related to the geometric rate ofreturn? When you are evaluating the performance of an investment that has been held for severalyears, what type of average rate of return(arithmetic orgeometric) should youuse? Why?.
Time Harris Pinwheel
1 9 17
2 6 34
3 13 30
4 16 23