Question

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           Price

1                  10

2                  14

3                  15

4                 22

5                  30

6                  25

1. Compute the rate of return, but use instantaneous rates of return rather than per-period rates of return.

2. Compute the mean and median of the rates of return.

3. Compute the geometric mean of the instantaneous rates of return.

Answer 1

Year Price Instantaneous rate of return per period r=( In (final price / initial price))/t 10 Om to -18.23% 33.65% 6.90% 38.30% 31.02% -18.23% 22 30 25 Instantaneous rate of return over 6 years = (In (25/12)) / 6 = 12.232% Mean 12.23% =AVERAGE(D6:011) median 18.96% =MEDIAN(D6:011) Geometric mean 21.23% =(PRODUCT(D6:011))^(1/6)