Question

Assignment in Calculating Rates of Return

A. From a financial news service you summarized the following information on Barlow Corporation.

Year           Dividend paid   Stock price, BOY

2013          $ 2.50              $38.25

2014             2.52                 40.75

2015                    2.65                 42.14

2016             2.85                 38.66

2017               2.85                              31.95

2018             2.90             47.47

Required:

1. Calculate the periodic rate of return for each of the years 2013-2017. (Why can’t you do so for 2018?)
2. Calculate the arithmetic mean return for the five-year period.
3. Calculate the geometric mean return (i.e., the compounded annual rate) for the period.

B. Dan bought an apartment complex at the beginning of 2013, paying $215,000 for the property. The after-tax cash flows and the property value at the end of each year was as follows:

Year           AT Cash flows        Value of property, EOY

2013          $25,000           $230,000

2014          28,500          270,000

2015                30,000      320,000

2016          28,000          280,000

2017              46,000          330,000

2018          38,000       375,000

Required:

1. Calculate the periodic rate of return for each of the years 2013-2018.

2. Calculate the arithmetic mean return for that same period.

3. Calculate the geometric mean return (i.e., the compounded annual rate) for the period.

Answer 1

Q A: Balow Corporation

Periodic return for all the 5 years, arithmetic average and geometric average are as follows:

Q B: Dan’s apartment complex

Periodic return for all the 6 years, arithmetic average and geometric average are as follows: