Problem: Consider the rate of return of stocks ABC and XYZ
|
Year
|
ABC
|
XYZ
|
|
1
|
22%
|
38%
|
|
2
|
9
|
11
|
|
3
|
19
|
19
|
|
4
|
6
|
0
|
|
5
|
1
|
-1
|
a. Calculate the arithmetic average return on these stocks over the sample period.
b. Which stock has greater dispersion around the mean?
c. Calculate the geometric average returns of each stock.
d-1. if you were equally likely to earn a return of 22%, 9%, 19%, 6% or 1%, in each year (these are the five annual returns for stock ABC), what would be your expected rate of return?
d-2. If you were equally likely to earn a return of 38%, 11%, 19%, 0%, or -11%, in each year (these are the five annual returns for stock XYZ), what would be your expected rate of return?