How i of s the annual rate of return calculated in pan d related to the geometric rate ret urm? When you are evaluating the performance of an investment that has been held for several years, what type of average rate of return should you use (arithmetic or geometric)? Why? n from college last spring with a major in nc- duating lim Hale took a job as an analyst trainee Mini-Case and t company in Chicago. His first few weeks I-Nov-11 5.60 investith a series of rotations throughout the firm's vari- 1-Dee-11 s.4 Closing Date Closing Prio Jun-12 S.3 2-Jul-12 40 1 -Aug-12 3.72 4 Sep-123 1-Oca-12 2.05 I-Nov-12 18 but this week he was assigned to one of the 6.7 pcin as an analyst. On his first day Jim's boss called -Feb-12 35 3-Jan-12 us operaling units f him some rudimentary I-Mar-12 8.0%2 investment returns of a semiconductor manu2-Apr-12 7.36 that he wanted to do some rudimentary ysis oft d Advanced Micro Devices,Inc (Ticker: AMD), was given the following month-end clo company spanning the November 1, 2011, 1-May-12 608 prices w ing tasks using the AMD price data ( He was then instructed by his boss to complete the tolhow note that AMD paid ine ember 1. 2012: dividend during 2008) Quesmoute the monthly realized rates of return earned by 5. Now calculate onthly realized rates of return earned by 5. Now calculate the annual rate of retun using the annual rate of retum ning the gew AMD for the entire year. metric average monthly rate of return using the following relationship the average monthly rate of return for AMD using , computing the com- verage rate both the arithmetic and geometric averages Geometric Average Monthly Rate of Retum Compound Annual Calculate the year-end price for AMD pound value of the beginning-of year price of s569 per share for 12 months at the monthly geometric a of return calculated earlier: Rate of Return 3 6. If you were given annual rate of return data for AMD or any other company's stock and you were asked to estimate the average annual rate of return an investor would have earned over the sample period by holding the stock, would you use an arithmetic or geometric average of the historical rates of returm? Explain your response as if you were talk ing to a client who has had no formal taining in finance or investments. End-of-Year Beginning-of-Year Stock Price Stock Price Geometric Average Monthly Rate of Returr Compute the annual rate of return for AMD using the heginming stock price for theperiod and the ending price ie., $5.69 and $1.88). Photo Credits Credits are listed in order of appearance PixelhlisFotolia: RunzelkondShuterstock How i of s the annual rate of return calculated in pan d related to the geometric rate ret urm? When you are evaluating the performance of an investment that has been held for several years, what type of average rate of return should you use (arithmetic or geometric)? Why? n from college last spring with a major in nc- duating lim Hale took a job as an analyst trainee Mini-Case and t company in Chicago. His first few weeks I-Nov-11 5.60 investith a series of rotations throughout the firm's vari- 1-Dee-11 s.4 Closing Date Closing Prio Jun-12 S.3 2-Jul-12 40 1 -Aug-12 3.72 4 Sep-123 1-Oca-12 2.05 I-Nov-12 18 but this week he was assigned to one of the 6.7 pcin as an analyst. On his first day Jim's boss called -Feb-12 35 3-Jan-12 us operaling units f him some rudimentary I-Mar-12 8.0%2 investment returns of a semiconductor manu2-Apr-12 7.36 that he wanted to do some rudimentary ysis oft d Advanced Micro Devices,Inc (Ticker: AMD), was given the following month-end clo company spanning the November 1, 2011, 1-May-12 608 prices w ing tasks using the AMD price data ( He was then instructed by his boss to complete the tolhow note that AMD paid ine ember 1. 2012: dividend during 2008) Quesmoute the monthly realized rates of return earned by 5. Now calculate onthly realized rates of return earned by 5. Now calculate the annual rate of retun using the annual rate of retum ning the gew AMD for the entire year. metric average monthly rate of return using the following relationship the average monthly rate of return for AMD using , computing the com- verage rate both the arithmetic and geometric averages Geometric Average Monthly Rate of Retum Compound Annual Calculate the year-end price for AMD pound value of the beginning-of year price of s569 per share for 12 months at the monthly geometric a of return calculated earlier: Rate of Return 3 6. If you were given annual rate of return data for AMD or any other company's stock and you were asked to estimate the average annual rate of return an investor would have earned over the sample period by holding the stock, would you use an arithmetic or geometric average of the historical rates of returm? Explain your response as if you were talk ing to a client who has had no formal taining in finance or investments. End-of-Year Beginning-of-Year Stock Price Stock Price Geometric Average Monthly Rate of Returr Compute the annual rate of return for AMD using the heginming stock price for theperiod and the ending price ie., $5.69 and $1.88). Photo Credits Credits are listed in order of appearance PixelhlisFotolia: RunzelkondShuterstock