Question

You own a stock that had returns of 8.40 percent, −6.30 percent, 21.40 percent, and 14.30 percent over the past four years. What was the geometric average return for this stock?

a. 8.36%
b. 8.96%
c. 9.45%
d. 10.24%
e. 9.83%

Answer 1

b. 8.96%

Step-by-step explanation:

As per given data

Year ____ Returns

_1 ______ 8.40%

_2 ______-6.30%

_3 ______21.40%

_4 ______14.30%

Now Use following formula to calculate the geometric average

Geometric Average =
`\sqrt[4]{x1 . x2 . x3 . x4}` - 1

Where

X1 = 8.40%

X2 = -6.30%

X3 = 21.40%

x4 = 14.30%

Placing value sin the formula

Geometric Average =
`\sqrt[4]{(1 + 0.0840) . (1 + (-0.0630)) . ( 1+ 0.214) . (1 + 0.143)}` - 1

Geometric Average = 8.96%