Question
In: Finance
Assume the rate of return given below are for two stocks listed on the Ghana ...
- Assume the rate of return given below are for two stocks listed on the Ghana
Stock Exchange (GSE).
|
Year |
Return on stock A |
Return on stock B |
|
1 |
0.2 |
0.3 |
|
2 |
0.10 |
0.1 |
|
3 |
0.14 |
0.18 |
|
4 |
0.05 |
0.00 |
|
5 |
0.01 |
-0.08 |
- Calculate the arithmetic average return on the two stocks over the 5-year period.
- Which of the two stocks has a greater dispersion around the mean?
- Calculate the geometric average returns of each stock.
Solutions
Expert Solution
ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.
a. AM = Simple Average of the returns.
AM of a= (0.20+0.10+0.14+0.05+0.01)/5 = 0.10
AM of b = (0.30+0.10+0.18+0.00-0.08)/5 = 0.10
b. stock B has a greater dispersion around the mean with its upper limit as 0.18 & lower limit as -0.08
c.
GM of A = [5√(1.20)*(1.10)*(1.14)*(1.05)*(1.01)]-1
= 9.80%
GM of B = [5√(1.30)*(1.10)*(1.18)*(1.00)*(0.92)]-1
= 9.20%
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