XYZ stock price and dividend history are as follows: Year Beginning-of-year Price Dividend paid at Year-End 2010 $100 $4 2011 $110 $4 2012 $90 $4 2013 $95 $4 What is the arithmetic average rate of return for the period from the beginning of 2010 to the end of 2012

3.15%

Explanation:

The computation of the arithmetic average rate of return is shown below:

Arithmetic mean = (Year 1 + year 2 Year n return) ÷ (Total number of years)

The rate of return is

= (Capital gain + dividend) ÷ Price

For 2010 - 2011 = ($110 - $100 + 4) ÷ $100 = 14%

For 2011 - 2012 = ($90 - $110 + $4) ÷ $100 = -14.55%

For 2012 - 2013 = ($95 - $90+ 4) ÷ $90 = 10%

Now the arithmetic average rate of return is

= (14% - 14.55% + 10%)

= 3.15%

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