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Consider the rate of return of stocks ABC and XYZ. 212345 Year 22% XYZ 36% 2 10 10 19 17 3 1 0 -8
Consider the rate of return of stocks ABC and XYZ. 212345 Year 22% XYZ 36% 2 10 10 19 17 3 1 0 -8 a. Calculate the arithmetic average return on these stocks over the sample period. (Round your answers to 2 decimal places.) ABC XYZ Arithmetic Average % b. Which stock has greater dispersion around the mean return? ABC 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.) Geometric Average ABC % d. If you were equally likely to earn a return of 22%, 10%, 19%, 3%, or 1% 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.) Expected rate of return % e. What if the five possible outcomes were those of stock XYZ? Expected rate of returni % f. Given your answers to parts (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance? Arithmetic Geometric
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