Question
You invest $1,000 into a stock at t=0. Your investment falls in value to $500 at t=1, and then falls to $400 at t=2. This
You invest $1,000 into a stock at t=0. Your investment falls in value to $500 at t=1, and then falls to $400 at t=2. This stock does not pay dividends. Calculate the arithmetic average annual return and the geometric average annual return over these two years. Round your answers to four decimal places. Assume no dividends. Which of the following is the best answer?
| A. | Arithmetic average = 0.6500; geometric average = 0.6432 | |
| B. | Arithmetic average = -0.4581; geometric average = -0.5118 | |
| C. | Arithmetic average = -0.3500; geometric average = -0.3675 | |
| D. | Arithmetic average = -0.3675; geometric average = -0.3500 | |
| E. | Arithmetic average = 0.6432; geometric average = 0.6500 | |
| F. | Arithmetic average = -0.5118; geometric average = -0.4581 | |
| G. | No, in fact, none of the above is correct. |
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