Finance Geometric and arithmetic returns

User Generated

wpnfu04

Business Finance

Description

A stock has had the following year-end prices and dividends:

Year       Price   Dividend
1   $ 43.15     -  
2     48.13   $ 0.45  
3     57.05     0.49  
4     45.13     0.55  
5     52.05     0.62  
6     61.13     0.68  


What are the arithmetic and geometric returns for the stock? (Round your answers to 2 decimal places. (e.g., 32.16))

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Explanation & Answer

Thank you for the opportunity to help you with your question!

return = (this period's p - last period's p + dividend)/last period's p; answer in percentage 

arimetic return = (return1 + return2 + ...)/6 periods 

geometric return = [(1+ return1)(1+ return2)(1+..)...]root to  periods 


51.106

52.10
Hope this helps

Please let me know if you need any clarification. I'm always happy to answer your questions.


Anonymous
Really useful study material!

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