Problem 24-5

Consider the rate of return of stocks ABC and XYZ.

Year	rABC		rXYZ
1	20	%	32	%
2	12		12
3	19		19
4	4		1
5	2		-7

a.	Calculate the arithmetic average return on these stocks over the sample period. (Round you answers to two decimal places. Omit the "%" sign in your response.)

Arithmetic average
rABC	%
rXYZ	%

b.	Which stock has greater dispersion around the mean?
	(Click to select)XYZABC

c.	Calculate the geometric average returns of each stock. (Round your answer to 2 decimal places. Do not round intermediate calculations. Omit the "%" sign in your response.)

Geometric average
rABC	%
rXYZ	%

d-1.	If you were equally likely to earn a return of 20%, 12%, 19%, 4%, or 2%, 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 answer to 2 decimal places. Omit the "%" sign in your response.)

Expected rate of return

%

d-2.	If you were equally likely to earn a return of 32%, 12%, 19%, 1%, or -7%, in each year (these are the five annual returns for stock XYZ), what would be your expected rate of return? (Do not round intermediate calculations.Round your answer to 2 decimal places.Omit the "%" sign in your response.)

Expected rate of return

%