Suppose you own two stocks, A and B In year 1, stock A earns a 2% return and stock B earns a 9% return. In year 2, stock A earns an 18% return and stock B earns an 11% return. Which stock has the higher geometric average return?
A) Stock A
B) Stock B
C) The two stocks have the same geometric average return.
D) At least three periods are needed to calculate the geometric average return.

Question

Quizplus · Accepted Answer

A: [(1.02)(1.18)]^1/2 1 = 9.71%; B: [(1.09)(1.11)]^1/2 1 = 10.00%.

Suppose You Own Two Stocks, a and B in Year