Suppose You Own Two Stocks, a and B

question 47

Multiple Choice

Suppose you own two stocks, A and B. In year 1, stock A earns a 2% return and stock B earns a 9% return. In year 2, stock A earns an 18% return and stock B earns an 11% return. Which stock has the higher geometric average return?

• A) Stock A
• B) Stock B
• C) The two stocks have the same geometric average return.
• D) At least three periods are needed to calculate the geometric average return.

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Definitions:

Inferior

A type of good for which demand decreases as the income of consumers increases.

Normal Good

A good whose demand increases as the income of consumers increases, and vice versa.

Normal Good

A type of good for which demand increases as the income of consumers increase, demonstrating a positive correlation between income and demand.

Inferior Good

A type of product whose demand decreases when the income of consumers increases, inverse to normal goods.