Suppose You Own Two Stocks, a and B

Multiple Choice

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. __________ has the higher arithmetic average return.

A) Stock A
B) Stock B
C) The two stocks have the same arithmetic average return.
D) At least three periods are needed to calculate the arithmetic average return.