Question
The price of shares of ABC stock was $60 on January 1, 2018 $70 on January 1, 2019; and $50 on January 1, 2020.
The price of shares of ABC stock was $60 on January 1, 2018 $70 on January 1, 2019; and $50 on January 1, 2020. Paul bought one share of ABC on January 1, 2018, four more on January 1, 2019, and sold all five shares on January 1, 2020. a. What is the annual arithmetic (time-weighted) average return on ABC stock during the two-year period? b. What is the annual geometric (time-weighted) average return on ABC stock during the two-year period? c. What is Paul's annual dollar-weighted average return during the two- year period? (To find the return, use Excel, a financial calculator, or trial and error. Using approximation is okay. Hint - Look for an integer between -21% and -25%). d. Why is Paul's annual dollar-weighted average return lower than the arithmetic and geometric time-weighted annual average return of ABC?
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