A stock has annual returns of 6 percent, 14 percent, -3 percent, and 2 percent for the past four years.

A stock has annual returns of 6 percent, 14 percent, -3 percent, and 2 percent for the past four years. The arithmetic average of these returns is _____ percent while the geometric average return for the period is _____ percent.    A.  4.57; 4.75 B.  4.75; 4.57 C.  6.33; 6.19 D.  6.19; 6.33 E.  6.33; 6.33 Arithmetic average = (0.06 + 0.14 - 0.03 + 0.02)/4 = 4.75 percent Geometric return = (1.06 × 1.14 × 0.97 × 1.02).25 - 1 = 4.57 percent

78.

A stock has annual returns of 5 percent, 21 percent, -12 percent, 7 percent, and -6 percent for the past five years. The arithmetic average of these returns is _____ percent while the geometric average return for the period is _____ percent.    A.  3.89; 3.62 B.  3.89; 4.60 C.  3.62; 3.89 D.  4.60; 3.62 E.  4.60; 3.89 Arithmetic average = (0.05 + 0.21- 0.12 + 0.07 - 0.06)/5 = 3.00 percent Geometric return = (1.05 × 1.21 × 0.88 × 1.07 × 0.94).20 - 1 = 2.37 percent

79.

A stock had returns of 16 percent, 4 percent, 8 percent, 14 percent, -9 percent, and -5 percent over the past six years. What is the geometric average return for this time period?    A.  4.26 percent B.  4.67 percent C.  5.13 percent D.  5.39 percent E.  5.60 percent Geometric average = (1.16 × 1.04 × 1.08 × 1.14 × 0.91 × 0.95)1/6 - 1 = 4.26 percent

80.

A stock had the following prices and dividends. What is the geometric average return on this stock?        A.  -15.87 percent B.  -13.71 percent C.  -13.33 percent D.  -12.91 percent E.  -11.48 percent Return for year 2 = ($16.10 - $16.40 + $0.50)/$16.40 = 1.2195 percent Return for year 3 = ($15.48 - $16.10 + $0.50)/$16.10 = -0.7453 percent Return for year 4 = ($9.15 - $15.48 + $0.75)/$15.48 = -36.0465 percent Geometric return = (1.012195 × 0.9925472 × 0.639535)1/3 - 1 = -13.71 percent

Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average

1.

Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average of 5 percent. Which one of the following terms refers to the difference between these two rates of return?    A.  risk premium B.  geometric return C.  arithmetic D.  standard deviation E.  variance Refer to section 12.3

2.

Which one of the following best defines the variance of an investment's annual returns over a number of years?    A.  The average squared difference between the arithmetic and the geometric average annual returns. B.  The squared summation of the differences between the actual returns and the average geometric return. C.  The average difference between the annual returns and the average return for the period. D.  The difference between the arithmetic average and the geometric average return for the period. E.  The average squared difference between the actual returns and the arithmetic average return. Refer to section 12.4

3.	Standard deviation is a measure of which one of the following?    A.  average rate of return B.  volatility C.  probability D.  risk premium E.  real returns Refer to section 12.4