A stock has had returns of -26 percent, 12 percent, 34 percent, -8 percent, 27 percent,...

A stock has had returns of -26 percent, 12 percent, 34 percent, -8 percent, 27 percent, and 23 percent over the last six years. 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.) 10.33% Arithmetic average return Geometric average return

Expert Solution

Arithmetic average return = (-0.26 + 0.12 + 0.34 - 0.08 + 0.27 + 0.23) / 6 = 0.1033 or 10.33%

Geometric expected return = [(1 + r1) × (1 + r2) × (1 + r3) × (1 + r4) × (1 + r5) × (1 + r6)]^1/6 − 1

Geometric expected return = [(1 - 0.26) × (1 + 0.12) × (1 + 0.34) × (1 - 0.08) × (1 + 0.27) × (1 + 0.23)]^(1/6) - 1

Geometric expected return = 0.0810 or 8.10%

jeff jeffy answered 2 years ago

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