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 return? Explain your response as if you were talking to a client who has no formal training in finance or investments.

Date closing Price Date Closing Price Mini-Case After graduating from college last spring with a major in ac- counting and finance, Jim Hale took a job as an analyst trainee for an investment company in Chicago. His first few weeks were filled with a series of rotations throughout the firm's vari- ous operating units, but this week he was assigned to one of the firm's traders as an analyst. On his first day Jim's boss called him in and told him that he wanted to do some rudimentary analysis of the investment returns of a semiconductor manu- facturer called Advanced Micro Devices, Inc. (Ticker: AMD). Specifically, Jim was given the following month-end clos- ing prices for the company spanning the November 1, 2011, through November 1, 2012: 1-Nov-11 1-Dec-11 3 Jn-12 1-Feb-12 1-Mar-12 2-Apr-12 1-May-12 5.69 5.4 671 7:35 8:02 7 36 6.08 DJn 12 2Jl-12 1-Aug-12 4-Sep-12 1-Oct-12 1-NOV-12 573 4.06 3:72 3 375 2:05 1988 He was then instructed by his boss to complete the follow- ing tasks using the AMD price data (note that AMD paid no dividend during 2008)