Accounting

Caswell Enterprises had the following end-of-year stock prices over the last five years and paid no dividends.

TimeCaswell: Time      Caswell

                                  1            $12

                                  2            $9

                                  3            $7

                                  4            $6

                                  5            $12

  • Calculate the annual rate of return for each year from the above information.
  • What is the arithmetic average rate of return earned by investing in Caswell’s stock over this period?
  • What is the geometric average rate of return earned by investing in Caswell’s stock over this period?
  • Considering the beginning and ending stock prices for the five-year period are the same, which type of average rate of return best describes the annual rate of return earned over the period (arithmetic or geometric)?
 
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