Question

The last four years of stock returns are as follows: Year 1 is -4% Year 2 is +28% Year 3 is +12% Year 4 is + 4% (a). What is the average annual return?

Answer 1

The Average annual return is:

= 10%.

Explanation:

a) Data and Calculations:

Year Stock Returns

Year 1 -4%

Year 2 +28%

Year 3 +12%

Year 4 + 4%

Total returns = 40%

Average annual returns = 10% (40%/4)

b) The average annual return is computed as the total returns for the four years divided by 4. It shows that on the average, the return earned per year from the stock investment is 10%, during the four-year period. It is the mean of the total returns.