Consider the rate of return of stocks ABC and XYZ$.$Consider the rate of return of stocks ABC and $xYZ.$

Required:

a$.$ Calculate the arithmetic average return on these stocks over the sample period.

b$.$ Which stock has greater dispersion around the mean return?

c$.$ Calculate the geometric average returns of each stock. What do you conclude?

d$.$ If you were equally likely to earn a return of $23\%,10\%,16\%,6\%,$ or $1\%$ in each year $($these are the five annual returns for stock ABC $),$

what would be your expected rate of return?

e$.$ What if the five possible outcomes were those of stock XYZ$?$

f$.$ Given your answers to parts $(d)$ and $($e$),$ which measure of average return, arithmetic or geometric, appears more useful for

predicting future performance?

Answer is complete but not entirely correct.

Complete this question by entering your answers in the tabs below.

Required C

Required $E$

Required $F$

Calculate the geometric average returns of each stock. What do you conclude?

Note: Do not round intermediate calculations. Round your answers to $2$ decimal places.

Year rABC rXYZ

$123\%30\%$

$210\%12\%$

$316\%18\%$

$46\%1\%$

$51\%5\%$

Required:

Calculate the arithmetic average return on these stocks over the sample period.

Which stock has greater dispersion around the mean return?

Calculate the geometric average returns of each stock. What do you conclude?

If you were equally likely to earn a return of $23\%,10\%,16\%,6\%,$ or $1\%$ in each year $($these are the five annual returns for stock ABC$),$ what would be your expected rate of return?

What if the five possible outcomes were those of stock XYZ$?$

Given your answers to parts $($d$)$ and $($e$),$ which measure of average return, arithmetic or geometric, appears more useful for predicting future performance?