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(Solved): Consider the rate of return of stocks \( A B C \) and \( X Y Z \). a. Calculate the arithmetic ave ...
Consider the rate of return of stocks \( A B C \) and \( X Y Z \). a. Calculate the arithmetic average return on these stocks over the b. Which stock has greater dispersion around the mean return? \( X Y Z \) \( A B C \)
c. Calculate the geometric average returns of each stock. What do you conclude? (Do not round intermediate calculations. Round your answers to 2 decimal places.) d. If you were equally likely to earn a return of \( 23 \%, 10 \%, 16 \%, 6 \% \), or \( 1 \% \) in each year (these are the five annual returns for stock \( A B C \) ), what would be your expected rate of return? (Do not round intermediate calculations.) e. What if the five possible outcomes were those of stock \( X Y Z \) ?
Expert Answer
a) For ABC, Return in year 1 (R1)=0.23 Return in year 2 (R2)=0.1 Return in year 3 (R3)=0.16 Return in year 4 (R4)=0.06 Return in year 5 (R5)=0.01 Arit