Answer to Question #152318 in Financial Math for Tazreen Rahman

Question

Assume that the price change component for common stocks was 6.75% for the period of 2010 to 2018 in the New York Stock Exchange. The investor invested $125,000 at the beginning of 2010 and the wealth value stands $245,000 at the end of 2018. Calculate return for yield component and geometric mean for common stocks.

Answer 1

Return for yield component is:

$\frac{245,000 - 125,000}{125,000} ×100 = 96$ %.

The geometric mean is used in finance to calculate average growth rates and is referred to as the compounded annual growth rate.

Geometric mean for common stocks is the same as the price change and is equal to 0.0675 or 6.75%.