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Homework answers / question archive / A stock has had returns of 8 percent, 26 percent, 14 percent, −17 percent, 31 percent, and −1 percent over the last six years
A stock has had returns of 8 percent, 26 percent, 14 percent, −17 percent, 31 percent, and −1 percent over the last six years. What are the arithmetic and geometric average returns for the stock?
Answer:
arithmetic return=Total return/Total time period
=(8+26+14-17+31-1)/6=10.167%(Approx).
geometric average return=[(1+rate1)(1+rate2).......(1+rate6)]^(1/6)-1
=[(1+0.08)(1+0.26)(1+0.14)(1-0.17)(1+0.31)(1-0.01)]^(1/6)-1
8.92%(Approx).
