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Consider the following end-of-day prices for a certain share Po = 22, P2 = 30, P2 = 15, Pz = 18

Finance Dec 05, 2020

Consider the following end-of-day prices for a certain share Po = 22, P2 = 30, P2 = 15, Pz = 18. a)(6 points)Calculate the returns per day for each of the three consecutive day-periods. b)(2 points)Calculate the arithmetic average of the three returns. c)(6 points)Calculate the geometric average of the three returns. d)(6 points)Calculate the return for the 3-day period, R[0,3], then compare 1 + R[0,3] to (1 + ?G)3 where Ñ is the geometric average of returns found in part c. e)(4 points)Calculate the volatility of the returns found in part a. f)6 points)Calculate the approximate instantaneous rate of return by using logarithms at each of days 1 and 2.

Expert Solution

Year Price Returns        
0 22 -        
1 30 36%        
2 15 -50%        
3 18 20%        
             
Answer to Q no 1          
             
Year Price Returns        
0 22 -        
1 30 36%        
2 15 -50%        
3 18 20%        
             
Answer to Q no 2          
Arithmetic mean 2        
    2%        
             
Answer to Q no 3          
Geometric mean =(((1.36)*0.5*(1.2))^(1/3))-1    
    -0.06553        
             
Answer to Q no 4          
             
R (0,3) -0.1818182 -18.18%        
1+R(0,3) 0.81818 81.82%        
             
(1+R)^3 0.8160111 81.61%        
             
Answer to Q no 5          
             
Volatility            
             
Year Price Returns        
0 22 -        
1 30 36% 0.1156      
2 15 -50% 0.2704      
3 18 20% 0.0324      
             
    Total 0.4184      
             
Average = (36-15+20)/3        
  2          
             
Volatility 0.4587382 =(0.4184/2)^0.5      
             
             
Answer to q no 6          
             
Day 1 =LN(30/22) 31.01%        
Day 2 =LN(15/30) -69.32%        
   
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