The arithmetic average daily return for Dopey Inc.was 2.0% for this past week.Dopey's stock was trading at $23.70 when the market closed on Friday.The daily returns for Monday, Tuesday, Thursday, and Friday are 4.8%, 5.6%, -4.0%, and 12.2%, respectively.What was Dopey's opening price on Monday?
A)$21.47
B)$21.55
C)$21.75
D)$22.80

Question

Quizplus · Accepted Answer

To calculate the opening price on Monday, we need to use the average daily return and the closing price on Friday, along with the daily returns for each day. We can use the following formula:

Closing price / (1 + average daily return)^n
Where n is the number of trading days between Friday and Monday.

In this case, we have:
Closing price = $23.70
Average daily return = 2.0%
n = 1 (since there was only one day between Friday and Monday)

We also have the daily returns for each day:
Monday = 4.8%
Tuesday = 5.6%
Thursday = -4.0%
Friday = 12.2%

Using the formula above, we can calculate the opening price on Monday as:

23.70 / (1 + 2.0%)^1 = $23.2059

Then, we can use the daily return for Monday to calculate the actual opening price:

23.2059 * (1 + 4.8%) = $24.3212

Therefore, the best choice is (C) $21.75.

The Arithmetic Average Daily Return for Dopey Inc