You Own a Stock That Has Produced an Arithmetic Average

question 4

Multiple Choice

You own a stock that has produced an arithmetic average return of 8.6 percent over the past five years.The annual returns for the first four years were 16,11,-19,and 3 percent,respectively.What was the rate of return on the stock in year five?

• A) -5.00 percent
• B) 2.75 percent
• C) 6.25 percent
• D) 28.00 percent
• E) 32.00 percent

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Definitions:

Issuance

The process of offering new securities, such as stocks or bonds, to the public for the first time.

Entry

A record of a financial transaction in an accounting system or journal.

Premium on Bonds Payable

The amount by which a bond's selling price exceeds its principal (face value), reflecting the difference between the market interest rate and the coupon rate of the bond.

Redeems

The act of exchanging a financial instrument, such as a bond or preferred stock, for its face value or for a specific commodity.