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Consider the rate of return of stocks ABC and XYZ. 11 30% Year 1 18% 2 3 14 4 4 5 3 -7 TIT
Consider the rate of return of stocks ABC and XYZ. 11 30% Year 1 18% 2 3 14 4 4 5 3 -7 TIT 17 a. Calculate the arithmetic average return on these stocks over the sample period. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Arithmetic Average ABC XYZ % % b. Which stock has greater dispersion around the mean return? XYZ c. Calculate the geometric average returns of each stock. What do you conclude? (Do not round intermediate calculations. Round your answers to 2 decimal places.) ABC XYZ Geometric Average % % d. If you were equally likely to earn a return of 18%, 11%, 14%, 4%, or 3%, in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected rate of return % e. What if the five possible outcomes were those of stock XYZ? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected rate of return % f. Given your answers to (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance? O Arithmetic O Geometric
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