Question

The S&P 500 index delivered a return of 20%, -10%, 20%, and 5% over four successive years.

What is the arithmetic average annual return for four years?
A) 10.50%
B) 13.13%
C) 8.75%
D) 9.63%

Answer 1

C) 8.75%

Step-by-step explanation:

Number of periods = 4 years

Given return rates = 20%, -10%, 20%, and 5%

To obtain the arithmetic average annual return, add the return rates given for all periods and divide the sum by the number of periods.

`AAR = (20-10+ 20+ 5)/(4) \\AAR=8.75\%`

Over four years, the S&P 500 index delivered an arithmetic average annual return of 8.75%.