Question

Please double check and show all your work.

Question 8 1 pts A stock has had the following year-end prices and dividends: Year Price Dividend $35.28 --- 36.64 $1.35 2 41.01 0.95 3 38.84 0.32 37.86 1.9 What is the geometric average return for this stock (in percent). Answer to two decimals. Carry intermediate calculations to four decimals.

Answer 1

Year 1:

Rate of Return, r1 = (Closing Price + Dividend - Opening Price) / Opening Price
Rate of Return, r1 = ($36.64 + $1.35 - $35.28) / $35.28
Rate of Return, r1 = 0.0768

Year 2:

Rate of Return, r2 = (Closing Price + Dividend - Opening Price) / Opening Price
Rate of Return, r2 = ($41.01 + $0.95 - $36.64) / $36.64
Rate of Return, r2 = 0.1452

Year 3:

Rate of Return, r3 = (Closing Price + Dividend - Opening Price) / Opening Price
Rate of Return, r3 = ($38.84 + $0.32 - $41.01) / $41.01
Rate of Return, r3 = -0.0451

Year 4:

Rate of Return, r4 = (Closing Price + Dividend - Opening Price) / Opening Price
Rate of Return, r4 = ($37.86 + $1.90 - $38.84) / $38.84
Rate of Return, r4 = 0.0237

Geometric Return = [(1 + r1) * (1 + r2) * (1 + r3) * (1 + r4)]^(1/4) - 1
Geometric Return = [(1 + 0.0768) * (1 + 0.1452) * (1 - 0.0451) * (1 + 0.0237)]^(1/4) - 1
Geometric Return = 1.2054^(1/4) - 1
Geometric Return = 1.0478 - 1
Geometric Return = 0.0478 or 4.78%