Consider the rate of return of stocks ABC and XYZ.

Year	rABC		rXYZ
1	20	%	30	%
2	10		12
3	15		18
4	4		1
5	1		11

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?

• 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		%
XYZ		%

d. If you were equally likely to earn a return of 20%, 10%, 15%, 4%, 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. 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?

• Arithmetic <---

• Geometric