aluati etic or geometric)? Why? llated in part d related to the geometric rate ng the performance of an investment that has Uhal years, what type of average rate of r return should you Mini-Case After graduating from colle use ge last sprin ing and finance, Jim Hale took a job g with a major in ac ent company in Chicago. His first few weeks 5.69 eries of rotations throughout the firm's vari- 1-Dec-1 5 n analyst. On his first day Jim's boss called 1-Feb-12 1.35 that he wanted to do some rudimentary 1-Mar-12 8.02 stment returns of a semiconductor manu- 2-Apr-12 1.36 ed Micro Devices, Inc. (Ticker: AMD). 1-May-12 6.08 for Closing Price but this week he was assigned to one of the 3-Jan-12 6 1-Nov-11 DateClosing Price 1-Jun-12 5.73 2-Jul-12 4.06 1-Aug-12 3.72 4-Sep-12 337 1-Oct-12 2.05 1-Nov-12 1.88 him in and told him wanted sis of the returns facturer called snecifically, Jim was given the following month-end ing prices for the company spanning the November 1, 2011 through November 1, 2012 of a semi wing month-end clos He was then instruct He was then instructed by his boss to complete the f ing tasks using the AMD price data (note that dividend during 2008) ollow- AMD paid no Questions pute the monthly realized rates of return earned by 5. Now calculate the annual rate of return using the geo- AMD for the entire year. metric average monthly rate of return using the following 2. Calculate the average monthly rate of return for AMD using relationship both the arithmetic and geometric averages. Compound Annual Rate of Returm Monthly Rate of Return 3. Calculate the year-end price for AMD, computing the com- pound value of the beginning-of-year price of $5.69 per share for 12 months at the monthly geometric average rate of return calculated earlier: 6. If you were given annual rate of return data for AMD or any other company's stock and you were asked to estimate the average annual rate of return an investor would have earned over the sample period by holding the stock, would you use an arithmetic or geometric average of the historical rates of return? Explain your response as if you were talk ing to a client who has had no formal training in finance or End-of-Year Beginning-of-Year Stock Price Stock Price 12 Geometric A verage 1+ investments. Monthly Rate of Return 4. Compute the annual rate of return for AMD using the beginning stock price for the period and the ending price (i.e., $5.69 and $1.88)