Question

A stock had the following prices and dividends. What is the geometric average return on this stock? Please show all the calculations by which you came up with the final answer. Dividend Year Price 122.57 2 22.90 3 22.26 4 24.08 5 25.90 6 27.98 7 22.62 8 24.33 926.98 10 32.23 0.30 0.31 0.33 0.35 0.37 0.39 0.41 0.43 0.45

Answer 1

Ans:- In this question, we need to find the geometric average return on the stock. For that first, we need to find the Return on each stock.we will use the GEOMEAN function of excel to find the answer easily.

P17 A - B C E G H Year Return + 1 Price Dividend Return 22.57 2 22.9 0.30 2.79% 3 22.26 0.31 -1.44% 4 24.08 0.33 9.66% 25.9 0.35 9.01% 6 27.98 0.37 9.46% 22.62 0.39 -17.76% 8 24.33 0.41 9.37% 9 26.98 0.43 12.66% 10 32.23 0.45 21.13% 5 102.79% 98.56% 109.66% 109.01% 109.46% 82.24% 109.37% 112.66% 121.13% 7 17 GEOMEAN 5.56%

P17 - fx Year Dividend Return Return + 1 =1+17 0.3 0.31 0.33 Price 22.57 22.9 22.26 24.08 25.9 27.98 22.62 24.33 26.98 32.23 0.35 to 00999 0.37 0.39 0.41 0.43 0.45 =(G7+H7-G6)/G6 =(G8+H8-G7)/G7 =(G9+H9-G8)/G8 =(G10+H10-G9)/G9 =(G11+H11-G10)/G10 =(G12+H12-G11)/G11 =(G13+H13-G12)/G12 =(G14+H14-G13)/G13 =(G15+H15-G14)/G14 =1+18 = 1+19 =1+110 =1+111 =1+112 =1+113 =1+114 =1+115 GEOMEAN =GEOMEAN(17:115)-1

Therefore the Geometric Average return is 5.56%.

Note:- Geometric mean can also be calculated by using this formula

= [(1+r1) * (1 + r2) * ( 1 + r3)...................(1 + rn)] ^1/n - 1, where r is the return

  = [( 1+ 0.0279) * (1 - 0.0144) *(1 + 0.0966) * ( 1+ 0.0901) * ( 1 + 0.0946) * ( 1 - 0.1776) * ( 1 + 0.0937) * ( 1 + 0.1266) * ( 1 + 0.2113)]^1/9 - 1= 0.05570 = 5.56%

Note:- Pls go through it If you have any doubt feel free to ask. If this answer helps you pls give thumbs up.