Obtain monthly close prices of Microsoft (symbol: MSFT) adjusted for stock splits and dividends during December...

Obtain monthly close prices of Microsoft (symbol: MSFT) adjusted for stock splits and dividends during December 1989 – December 2019 from Yahoo Finance (finance.yahoo.com). Using Excel, compute monthly returns during January 1990 – December 2019. From these returns, compute arithmetic and geometric return averages over the entire period. Report your answers and confirm that arithmetic average is greater than geometric average.

Guideline:

1. Yahoo Finance allows you to download the data in a spreadsheet.

2. At Yahoo Finance, go to Historical Prices and use Adj. Close to compute returns.

3. When you download monthly data from Yahoo Finance, you will see first days of each month appearing under the "Date" variable. The Adj. Close on the same row is the adj. close at the end of that month. For example, the adj. close price for Microsoft that appears in the row where the Data is 2019-12-01 is the adj. close price for December 2019

Solutions

Expert Solution

Return in each month = (current month price - previous month price) / previous month price

Arithmetic average is calculated using AVERAGE function in Excel

Geometric average is calculated by adding 1 to each month's return, calculating the average of that series using GEOMEAN function in Excel, and subtracting 1 to get the geometric average return for the period.

Arithmetic average is 2.0684%

Geometric average is 1.6822%

jeff jeffy answered 1 year ago

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