FIN 301 CH 7 Homework

# 22 caswell enterprises had the following end of year

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22. Caswell Enterprises had the following end-of-year stock prices over the last five years and paid no cash dividends: a) Calculate the annual rate of return for each year from the above information. b) What is the arithmetic average rate of return earned by investing in Caswell's stock over this period? c) What is the geometric average rate of return earned by investing in Caswell's stock over this period? d) Considering the beginning and ending stock prices for the five-year period are the same, which type of average rate of return best describes the average annual rate of return earned over the period (the arithmetic or geometric)? a. The annual rate of return at the end of year 2 is 33.33% The annual rate of return at the end of year 3 is -31.25% The annual rate of return at the end of year 4 is -18.18% The annual rate of return at the end of year 5 is 33.3% b. The arithmetic average rate of return earned by investing in Caswell's stock over this period is 4.31% c. The geometric average rate of return earned by investing in Caswell's stock over this period is 0% d. Considering the beginning and ending stock prices for the five-year period are the same, the geometric average rate of return best describes the average annual rate of return earned over the period. Tim e Caswel l RoR AA-RoR 1 \$12 2 \$16 0.33 1.33 3 \$11 -0.31 0.69 4 \$9 -0.18 0.82

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5 \$12 0.33 1.33 AA-RoR 0.04 1.00 GAR 0.00%
• Fall '08
• HOYT
• Finance, Caswell

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