Question

What is the geometric average return? A)3.83% B)3.47% C)3.10% D)2.74% E)2.37%

Answer 1

The geometric average return is a measure of the average rate of return on an investment over a period of time, calculated by taking the nth root of the product of the individual rates of return.

Step-by-step explanation:

The geometric average return is a measure of the average rate of return on an investment over a period of time. It is calculated by taking the nth root of the product of the individual rates of return, where n is the number of periods.

For example, if you have investments with returns of 5%, 10%, and 15% over 3 years, you would calculate the geometric average return as follows:

1. Convert the individual rates of return into decimal form: 5% = 0.05, 10% = 0.10, 15% = 0.15
2. Multiply these decimal values together: 0.05 x 0.10 x 0.15 = 0.0075
3. Take the cube root of this product:∛0.0075 ≈ 0.08097
4. Convert the result back into a percentage: 0.08097 x 100 = 8.097%

The geometric average return in this example is approximately 8.097%.