What Are the Geometric and Arithmetic Average Returns for a Stock

question 297

Multiple Choice

What are the geometric and arithmetic average returns for a stock with annual returns of 5%, 10%, -8%, and 16%?

• A) 5.37%; 5.75%
• B) 6.49%; 7.67%
• C) 7.22%; 5.75%
• D) 7.22%; 7.67%
• E) 9.68%; 5.75%

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Definitions:

Risk-Free Rate

The return on an investment with no risk of financial loss, often represented by the yield on government bonds.

Discount Rate

The interest rate charged to commercial banks and other financial institutions for the loans they take from the central bank or the rate used in discounted cash flow analysis to determine the present value of future cash flows.

Annually

Pertaining to an occurrence, calculation, or payment that happens every year.

Payment Schemes

Systems or methods used to transfer money between entities, often involving structured processes and standards for executing transactions.