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Question

# a.  The annual rate of return at the end of year 2 is

______%. (Round to two decimal places.)

The annual rate of return at the end of year 3 is ________%. (Round to two decimal places.)

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The annual rate of return at the end of year 4 is ________%. (Round to two decimal places.)

The annual rate of return at the end of year 5 is _____%. (Round to two decimal places.)

b.  The arithmetic average rate of return earned by investing in Brangus Cattle Company’s stock over this period is _______%. (Round to two decimal places.)

c.  The geometric average rate of return earned by investing in Brangus Cattle Company’s stock over this period is ________g%. (Round to two decimal places.)

d.  Which type of average rate of return best describes the average annual rate of return earned over the period (the arithmetic or geometric)?  Why?  (Select the best choice below.)A. Geometric average return best describes the average annual rate of return over a period because it is a simple average, so it answers the question concerning the expected rate of return over a multi-year period. B. Arithmetic average return best describes the average annual rate of return over a period because it is a simple average, so it answers the question concerning the expected rate of return over a multi-year period. C. Arithmetic average return best describes the average annual rate of return over a period because it takes compounding into account, so it answers the question concerning the expected rate of return over a multi-year period. D. Geometric average return best describes the average annual rate of return over a period because it takes compounding into account, so it answers the question concerning the expected rate of return over a multi-year period.

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 \$9 3 \$14 4 \$21 5 \$25