Question - The following are annual rates of return for U.S. government T-bills and U.K. common stocks.
|
Year
|
U.S. Government T-Bills
|
U.K. Common Stock
|
|
2003
|
.063
|
.150
|
|
2004
|
.081
|
.043
|
|
2005
|
.076
|
.374
|
|
2006
|
.090
|
.192
|
|
2007
|
.085
|
.106
|
a. Compute the arithmetic mean rate of return and standard deviation of rates of return for the two series.
b. Discuss these two alternative investments in terms of their arithmetic average rates of return, their absolute risk, and their relative risk.
c. Compute the geometric mean rate of return for each of these investments. Compare the arithmetic mean return and geometric mean return for each investment and discuss this difference between mean returns as related to the standard deviation of each series.