Question

If you had a fund with a Year 1 return of +30% and a year 2 return of -25%, what is this fund's

a. average annual return for the two years and
b. actual return for the two year period?

Answer 1

During Year 1, there's a return of +30%
During Year 2, there's a return of -25%

(A)
The average annual return for two years is ... first we need to get the cumulative return.
= (1 + 0.30) * (1 + -0.25)
= 2.05

Then divide it by 2 to get the average annual return
= 2.05 / 2
= 1.025

So the average annual return is 1.025

(B) The Actual return for the two year period is
= 30% + -25%
= 5%

So the actual return for two year period is 5%