A Stock Has an Average Arithmetic Return of 12

question 2

Multiple Choice

A stock has an average arithmetic return of 12.55 percent and an average geometric return of 12.40 percent based on the annual returns for the last 15 years. What is projected average annual return on this stock for the next 10 years?

• A) 12.17 percent
• B) 12.21 percent
• C) 12.38 percent
• D) 12.50 percent
• E) 12.69 percent

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Definitions:

Treasury Stock

Shares that were issued and later reacquired by the issuing corporation, which do not confer voting rights or pay dividends.

Purchase Price

The amount of money paid to buy a good, service, or asset. It encompasses all forms of considerations including cash, assets, assumed liabilities, and other financial terms involved in a transaction.

Common Stock

An equity security that represents ownership in a corporation, with rights to vote on corporate matters and receive dividends.

Par Common Stock

The nominal or face value assigned to a share of common stock as stated in the corporate charter, which has little relation to its market value.