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You have the following rates of return for a risky portfolio for several recent years. Assume that the stock pays no dividends.
Year Beginning of Year Price # of Shares Bought or Sold
2008 $65 180 bought
2009 $70 130 bought
2010 $66 155 sold
2011 $69 155 sold
What is the geometric average return for the period?
A. 3.03%
B. 2.01%
C. 4.03%
D. 1.50%

Respuesta :

TomShelby

Answer:

B. 2.01%

Explanation:

First Year

Beginning Valuer

$65 x 180 shares = 11,700

Year-end Value:

180 shares x $70 = 12,600

return: 12,600 / 11,700 - 1 = 0.076923077

Second Year:

(180 + 130) shares x $70 = 21,700

Year-end Valuation:

310 shares x $66 = 20,460

return 20,460 / 21,700 - 1 = -0,0571428571428571

Third Year:

Beginning

(310 - 155) x 66 = 10,230

Ending: 155 x 69 = 10,695

Return: 10,695 / 10,230 - 1 = 0,0454545454545455

Average return:

(1  +  0.076923077) ( 1 - 0,0571428571428571) ( 1 + 0,0454545454545455 ) = (1 +r) ^3

1.061539385 = (1 +r) ^3

r = ∛1.061539385 - 1

r = 2.01%

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