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F301 PS5 Solutions_11Spring

# F301 PS5 Solutions_11Spring - F301 Problem Set 5 Solutions...

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F301 Spring 2011 Page 1 of 1 F301 Problem Set 5 Solutions Spring 2011 Each question is worth 3 points. 33 points possible. Shown below are the year-end closing stock prices for shares of Walt Disney Co. for the last six years. The rate of return per year is the percent change from one year to the next. Use this information to answer Year-end 2005 2006 2007 2008 2009 2010 Year-end 2005 2006 2007 2008 2009 2010 \$23.91 \$33.52 \$28.75 \$20.22 \$29.23 \$38.88 23.91 33.52 28.75 20.22 29.23 38.87 40.19% -14.23% -29.67% 44.56% 32.98% 1. Compute the arithmetic average return from year-end 2005 to year-end 2010. Show your answer as a Arith 14.77% 140.19% 85.77% 70.33% 144.56% 132.98% percent with two decimal places. 2. Compute the geometric average return from year-end 2005 to year-end 2010. Show your answer as a Geom 10.21% percent with two decimal places. 3. Using Excel or your calculator, find the standard deviation of the returns. Show your answer as a Stdev 34.21% 4. Show the future value equation, and use this equation to compute the future value of the first stock price after five years. Use the geometric average as the annual rate of return. FV = 23.91 × 1.1021^5
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