The Beginning Share Price for a Security Over a Three-Year

question 35

Multiple Choice

The beginning share price for a security over a three-year period was $50. Subsequent year-end prices were $62, $58 and $64. The arithmetic average annual rate of return and the geometric average annual rate of return for this stock were:

• A) 9.30% and 8.58% respectively.
• B) 9.30% and 7.89% respectively.
• C) 9.30% and 7.03% respectively.
• D) 9.30% and 6.37% respectively.

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Definitions:

Inflation Rate

The escalation in the average price level of goods and services within an economy over a given period.

Base Year

A specific year against which economic growth is measured, serving as a standard point of reference for real value comparisons.

GDP Deflator

A measure of the price level calculated as the ratio of nominal GDP to real GDP times 100

Consumer Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, typically used as an indicator of inflation.