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The annual rates of return for Canadian common stocks and Japanese common stocks are provided in the following table:

Year

Canadian Common Stocks

Japanese Common Stocks

2014

-.141

.051

2015

.088

.229

2016

.280

-.224

2017

.050

.313

2018

.210

.155

2019

.220

.009

1. Compute the arithmetic mean rate of return and sample standard deviation of rates of returns for the two series. Discuss these two alternative investments in terms of their arithmetic average rates of return and their risk

2. Compute the geometric mean rate of return for each of these investments (markets).

Compare the arithmetic mean return and geometric mean return for each investment and discuss this difference between the two means as related to the standard deviation of each series.

Assess the quality of the approximation through comparison with the direct estimate of the sample variance.

3. Calculate the inflation-adjusted rates of returns for Canadian and Japanese stocks. What are the implications for a long-term investor? Assume the inflation rate is 3% in Canada and 4.5% in Japan.