Question

4.Over the last six years the shares of company XYZ's stock had returns of 18 percent, 18 percent, 15 percent, -4 percent, 15 percent, and -7 percent. a.Calculate the arithmetic average return. b.Calculate the geometric average return.

Answer 1

Answer:

a. 9.17%

b. 8.64%

Explanation:

a. Arithemetic mean;

= (18 + 18 + 15 + (-4) + 15 + (-7) ) / 6

= 9.17%

b. Geometric mean;

= [ ( 1 + 18%) * ( 1 + 18%) * ( 1 + 15%) * (1 - 4%) * (1 + 15%) * (1 - 7%)] ^1/6 - 1

= 0.0863897168

= 8.64%