Question: Caswell Enterprises had the following end-of-year stock prices over the last five years and paid no dividends.
|
Time
|
Caswell
|
|
1
|
$12
|
|
2
|
9
|
|
3
|
7
|
|
4
|
6
|
|
5
|
12
|
Required:
1. Calculate the annual rate of return for each year from the above information.
2. What is the arithmetic average rate of return earned by investing in Caswell's stock over this period?
3. What is the geometric average rate of return earned by investing in Caswell's stock over this period?
4. Considering the beginning and ending stock prices for the five-year period are the same, which type of average rate of return best describes the annual rate of return earned over the period (arithmetic or geometric)?
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