Question

You own a stock which has produced annual returns of 11 percent, 3 percent, 8 percent, and 14 percent over the past four years, respectively. The arithmetic rate of return is _____ percent and the geometric rate of return is _____ percent.A) 8.50; 8.92B) 8.50; 18.92C) 9.00; 8.92D) 9.00; 9.92E) 9.00; 18.92

Answer 1

C) 9.00; 8.92

Step-by-step explanation:

The arithmetic rate of return is given by:

`R_(A) = (11+3+8+14)/(4) \\R_(A) = 9.00`

The geometric rate of return is given by:

`R_(G) =  (\sqrt[4]{(1.11*1.03*1.08*1.14)} -1) *100 \%\\R_(G) =  (1.0892-1) *100 \%\\R_(G) =  8.92`

Therefore, the arithmetic rate of return is 9.00 percent and the geometric rate of return is 8.92 percent

The answer is C) 9.00; 8.92.