Question

1. 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

1. Calculate the arithmetic average return on the two stocks over the 5-year period.
2. Which of the two stocks has a greater dispersion around the mean?
3. Calculate the geometric average returns of each stock.

Answer 1

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%