The Panama Railroad Company was established in 1850 to construct a railroad across the isthmus that would allow fast and easy access between the Atlantic and Pacific Oceans. The following table (The Big Ditch, Mauer and Yu, 2011) provides annual returns for Panama Railroad stock from 1853 through 1880.

Return on Panama Railroad

Year Company Stock (%)

1853 ................21

1854 ................29

1855 ................ 19

1856 ................ 2

1857 ................ 3

1858 ................36

1859 ................21

1860 ................16

1861 ................25

1862 ................43

1863 ................44

1864 ................48

1865 ................ 7

1866 ................11

1867 ................23

1868 ................20

1869................ 211

1870................ 251

1871 ................ 242

1872 ................39

1873 ................42

1874 ................12

1875 ................26

1876 ................ 9

1877 ................26

1878 ................25

1879 ................31

1880 ................30

a. Create a graph of the annual returns on the stock. The New York Stock Exchange earned an annual average return of 8.4% from 1853 through 1880. Can you tell from the graph if the Panama Railroad Company stock outperformed the New York Stock Exchange?

b. Calculate the mean annual return on Panama Railroad Company stock from 1853 through 1880. Did the stock outperform the New York Stock Exchange over the same period?