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Kazeer [188]
3 years ago
15

A stock has a geometric average return of 14.6 percent and an arithmetic average return of 15.5 percent based on the last 15 yea

rs. What is the estimated average rate of return for the next six years based on Blume's formula?
Business
1 answer:
Bad White [126]3 years ago
7 0

Answer:

15.18%

Explanation:

this problem is solved applying directly te Blume´s formula, which is the next:

R_{t}=\frac{T-1}{N-1}*GeometricAverage+\frac{N-T}{N-1} *ArithmeticAverage

where R is the return, T numbers of years to estimate and N is the observed number of years. So with given data, we have:

R_{t}=\frac{6-1}{15-1}*0.146+\frac{15-6}{15-1} *0.155

R_{t}=15.18%

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Answer:

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6 0
3 years ago
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