(Solving a comprehensive problem) Use the end-of-year stock price data in the popup window, to answer the following questions for the Harris and Pinwheel companies a. Compute the annual rates of return for each time period and for both firms. b. Calculate both the arithmetic and the geometric mean rates of return for the entire three-year period using your annual rates of retum from part a. (Note: you may assume that neither firm pay c. Compute a three-year rate of return spanning the entire period (.e, using the ending price for period 1 and ending price for period 4) d. Since the rate of return calculated in part o is a three-year rate of return, convert it to an annual rate of return by using the following equation Three-Year Rate of Return (-)-(- Annual Rate of Return e. How is the annual rate of retum calculated in part d related to the geometric rate of retum? When you are evaluating the performance of an investment that has been held for several years, w of return (arithmetic or geometric) should you use? Why? Cat Value of Annual Rate Value of Pinwheel Stock Annual Rate of Return Harris Stock of Return Time 1 $8 $19 34 2 31 20 15 3 000 *** Time 1 Value of Harris Stock -234 9615 11 Annual Rate of Return -25.00% 83.33% 36.36% Value of Pinwheel Stock $19 34 31 26 GEVEER Annual Rate of Return *** % % c. The three-year rate of return spanning the entire period for Harris is%. (Round to two decimal places.). The three-year rate of return spanning the entire period for Pinwheel is%. (Round to two decimal places.) d. The annual rate of return converted from the three-year rate in part a for Harris is%. (Round to two decimal places) The annual rate of return converted from the three-year rate in part e for Pinwheel is%. (Round to two decimal places.) e. How is the annual rate of return calculated in part d related to the geometna rate of return? (Select the best choice below.) OA. The annual rate of return calculated in part d is the same as the geometric rate of return in this problem but this is only a coincidence OB. The annual rate of return calculated in part d is not related to the geometric average rate of return. OC. The annual rate of return OD. The annual rate of retum calculated in part d is nothing but the arithmetic average rate of return calculated in a different way. calculated in part d is nothing but the geometric average rate of return calculated in a different way. Data table Time Harris Pinwheel $8 $19 2 6 34 3 11 31 4 15 26 (Click on the icon in order to copy its contents into a spreadsheet.) 1 A X irs
