Solution (a) Arithmetic and Geometric Average returns

Year Beginning of Year Price Dividend Paid at Year-End

2018 $ 100 $4
2019 120 4
2020 90 4
2021 100 4
SUM OF ALL VALUES
Arithmetic Average= (Sum of all values/ No. of values)
6.00%
Geometric Average= (((1+return)*(1+return2)*…*(1+return n))^(1/n))-1
5.78%
Arithmetic returns 6.00%
Geometric returns 5.78%

Solution (b) Dollar weighted rate of return

Year Shares Buying/Selling Beginning of Year Price

2018 Buys 3 shares at the begin $ 100

2019 Buys 2 shares at the begin 120

2020 Sell 1 share at the beginni 90

2021 Sell 4 shares at the beginn 100

Dollar Weighted Rate of Return

FORMULA DWRR=
 Returns Returns formula

24% (120-100+4)/100
-21.67% (90-120+4)/120
15.56% (100-90+4)/90
17.89%

2)*…*(1+return n))^(1/n))-1

Dividend Paid at Year-end (Beginning of Next Year) Net cash Flows

$4 -300

4 -228

4 110
 4 416

Dollar Weighted Rate of Return -0.1607%

IRR(-300, -228, 110,416)

Note

Buying 3 shares @ 100

Buying 2 shares @ 120 and receiving dividend on 3 shares

Selling 1 share @ 90 and receiving deividends on 5 shares

Selling 4 shares @100 and receiving dividend on 4 shares