Question

Consider the rate of return of stocks ABC and XYZ. Year rABC rXYZ 1 20% 30% 2 12 12 3 14 18 4 3 0 5 1 −10 Calculate the arithmetic average return on these stocks over the sample period.

Answer 1

After calculating , The arithmetic average return on stocks ABC and XYZ over the sample period is 10%.

Step-by-step explanation:

The arithmetic average return on stocks ABC and XYZ over the sample period can be calculated by finding the sum of the returns for each stock and dividing it by the number of years.

For stock ABC: (20% + 12% + 14% + 3% + 1%) / 5 = 10%.

For stock XYZ: (30% + 12% + 18% + 0% + -10%) / 5 = 10%.

Therefore, the arithmetic average return on both stocks over the sample period is 10%.

Answer 2

The arithmetic average return of stocks ABC and XYZ over the given five-year period is each 10%, calculated by summing their individual yearly returns and dividing by the number of years.

Step-by-step explanation:

To calculate the arithmetic average return on stocks ABC and XYZ over the sample period, you need to sum up the individual yearly returns for each stock and then divide by the number of years. For ABC, the sum is (20% + 12% + 14% + 3% + 1%) = 50%. For XYZ, the sum is (30% + 12% + 18% + 0% - 10%) = 50%. To find the average, divide each sum by the number of years.

Arithmetic average return for ABC: 50% / 5 = 10%
Arithmetic average return for XYZ: 50% / 5 = 10%

This calculation shows that, despite the fluctuations in annual returns, both stocks ABC and XYZ have the same arithmetic average return over five years.