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Suppose that you bought a stock 6 years ago at $12. The stock’s price at the...

Suppose that you bought a stock 6 years ago at $12. The stock’s price at the end of each year is shown here:

Year

1

2

3

4

5

6

$Price

10

14

15

22

30

25

a) Compute the rate of return for each year (in decimal form rounded to 2 decimal places).

b) Compute the geometric mean of the rates of return. Round to 3 decimal places

math   Statistics-And-Probability   
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Answer #1

(a) Suppose you bought a stock 6 years ago at $12. The stocks price at the end of each year is given below: The computati on table of rate of return for each year Present Rate of Fear evious Rate of Return Rate of ReturnPrevious - Present |return -0.20 0.8 14 15 12 12 12 12 12 0.141.142857 0.20 0.45 1.454545 0.60 0.52 1.2 30 18 25 13 1.52 b) Definition The average rate per period on an investm ent that is compounded over multiple periods is the geometric mea The formula for calculating the geometric mean of the rates of return is rate of returns r n- number of periods ยู่(0.8)x(1. 142857)x(1.2)x(1.454545): (1.6): (1.52)-1 3.881093-1 1.2536-1 0.2536 Therefore, the geometric mean of the rates of return is approxim ately Geometric mean 0.254

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