Consider the rate of return of stocks ABC and XYZ. Year 1 2 3 4...
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Consider the rate of return of stocks ABC and XYZ. Year 1 2 3 4 5 ABC 24% 9 16 6 1 XYZ 36% 12 18 1 -11 a. Calculate the arithmetic average return on these stocks over the sample period. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Arithmetic Average | XYZ b. Which stock has greater dispersion around the mean return? O XYZ 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.) Geometric Average ABC % |XYZ d. If you were equally likely to earn a return of 24%, 9%, 16%, 6%, or 1%, in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected rate of return e. What if the five possible outcomes were those of stock XYZ? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected rate of return % f. Given your answers to (d) and (e), which measure of average return, arithmetic or geometric, appears more useful for predicting future performance? Arithmetic O Geometric
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