The common stock of the Brangus Cattle Company had the following end-of-year stock prices over the last five years and paid no cash dividends:TimeBrangus Cattle Company1$15210312423525i) What is the arithmetic average rate of return earned by investing in the company’s stock over this period?ii) What is the geometric average rate of return earned by investing in this company’s stock over this period?

Arithmetic Average Rate of Return: It is the average or mean of the rate of return. The other name…

i) What is the arithmetic average rate of return earned by investing in the company’s stock over this period? ii) What is the geometric average rate of return earned by investing in this company’s stock over this period?

i) What is the arithmetic average rate of return earned by investing in the company’s stock over this period? ii) What is the geometric average rate of return earned by investing in this company’s stock over this period?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 5P

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Question

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The common stock of the Brangus Cattle Company had the following end-of-year stock prices over the last five years and paid no cash dividends:

Time	Brangus Cattle Company
1	$15
2	10
3	12
4	23
5	25

i) What is the arithmetic average rate of return earned by investing in the company’s stock over this period?

ii) What is the geometric average rate of return earned by investing in this company’s stock over this period?

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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