The annual returns for FJW's common stock over the years 2003, 2004, 2005, and 2006 were 15%, 19%, -8%, and 14%.
1. What is the arithmetic mean return for FJW's common stock?
A. 10.00%.
B. 14.00%.
C. 15.25%.
2. What is the geometric mean return for FJW's common stock?
A. 9.45%.
B. 14.21%.
C. It cannot be determined because the 2005 return is negative.'
Answer:
1. A
(15% + 19% + (-8%) + 14%) / 4 = 10%
2. A
(1.15 x 1.19 x 0.92 x 1.14)0-25- 1 = 9.45%