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Suppose you purchased a stock at the end of 2017 and sold it at the end of 2019. The year-end stock prices are shown below
Suppose you purchased a stock at the end of 2017 and sold it at the end of 2019. The year-end stock prices are shown below and the stock paid no dividends.
2017 | 2018 | 2019 |
$100 | $112 | $100 |
- Compute the average annual return according to the arithmetic mean method.
- Compute the average annual return according to the geometric mean method.
- Compare the results in (i) and (ii), and indicate which is more intuitively appealing in assessing the performance of your investment.
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