Question

A stock has had the following year-end prices and dividends: Year Price Dividend 1 $ 43.37 - 2 48.35 $ .60 3 57.27 .63 4 45.35 .80 5 52.27 .85 6 61.35 .93 What are the arithmetic and geometric average returns for the stock? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

geometric mean return = 1.2%

arithmetic mean return = 1.21%

Step-by-step explanation:

Year Price Dividend Yearly return

1 $43.37 - 0

2 $48.35 $0.60 1.24%

3 $57.27 $0.63 1.1%

4 $45.35 $0.80 1.76%

5 $52.27 $0.85 1.63%

6 $61.35 $0.93 1.52%

geometric mean return = [(1 + 0) x (1 + 0.0124) x (1 + 0.011) x (1 + 0.0176) x (1 + 0.0163) x (1 + 0.0152)]¹/⁶ - 1 = 1.012 - 1 = 0.012 = 1.2%

arithmetic mean return = (0% + 1.24% + 1.1% + 1.76% + 1.63% + 1.52%) / 6 = 7.25% / 6 = 1.21%