Question

Suppose that you are given the following information about the stock price/dividends for a company:

Year	Beginning of Year Price	Dividend Paid at Year-End
2016	$80	$3
2017	$85	$4
2018	$78	$2
2019	$82	$2

If the company's stock price is $85 per share at the end of 2019, what is the arithmetic average return for an investment in XYZ over the period? What is the geometric average return for an investment in XYZ over the period? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Arithmetic mean	%
Geometric mean	%

Answer 1

Rate of Return from 2016-17 =(Ending Price-Beginning Price+Dividend)/Beginning Price =(85-80+3)/80 =10.00%
Rate of Return from 2017-18=(Ending Price-Beginning Price+Dividend)/Beginning Price =(78-85+4)/85 =-3.5294%
Rate of Return from 2018-19 =(Ending Price-Beginning Price+Dividend)/Beginning Price =(82-78+2)/78 =7.6923%
Arithmetic average rate of return =(10%-3.5294%+7.6923%)/3 =4.72%
Geometric rate of return =((1+10%)*(1-3.5294%)*(1+7.6923%))^(1/3)-1 =4.55%