please answer those two questions 1. 2. A stock you are looking at has generated the...

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please answer those two questions

1.

A stock you are looking at has generated the following annual returns: 10.0%, -5.0% and 4.0%. What was its compound average a

2.

A stock you are looking at has generated the following annual returns: 10.0%, -5.0% and 4.0%. What was its total return durin

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Answer 1

Answer #1

(1) Periodic Returns: 10%, -5 % and 4 % , Number of Periods = 3

Compound Average Annual Return = [(1+0.1) x (1-0.05) x (1+0.04)]^(1/3) - 1 = 0.02813 or 2.813 % ~ 2.81 %

(2) Periodic Returns: 10%, - 5 % and 4 %, Number of Periods = 3, let the initial investment be $ 100

Investment Value at the end of Year 1 = 100 x 1.1 = $ 110

Investment Value at the end of Year 2 = 110 x 0.95 = $ 104.5

Investment Value at the end of Year 3 = 104.5 x 1.04 = $ 108.68

Total Return = [(108.68-100)/100] x 100 = 8.68 %

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