Which is TRUE regarding the trade-off a firm makes when it spends money on an investment project? A. The trade-off a firm faces
1 answer:
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Answer and Explanation:
Average return = (Closing Price + Dividend - Opening Price) / Opening Price
For 1st year:
0 Return
For 2nd year:
($48.41 + $0.69 - $43.43) / $43.43 = 0.130
For 3rd year
($57.33 + $0.72 - $48.41) / $48.41 = 0.199
For 4th year:
($45.41 + $0.80 - $57.33) / $57.33 = -0.194
For 5th year
($52.33 + $0.85 - $45.41) / $45.41 = 0.171
For 6th year
($61.41 + $0.93 - $52.33) / $52.33 = 0.191
Arithmetic Return = Sum of all return / Total number of return
= [0.130 + 0.199 + (-0.194) + 0.171 + 0.191] / 5
Arithmetic Return = 9.96%
Geometric Return = 1.0880 - 1
Geometric Return = 0.0880 = 8.80%