A share had returns of 6%, 13%, -11%, and 17% over the past four years.What is the geometric average return for this time period?
A)4.5%
B)5.7%
C)6.2%
D)7.3%
E)8.2%

Question

Quizplus · Accepted Answer

To calculate the geometric average return, we can use the following formula:
Geometric Average Return = ((1 + R1) x (1 + R2) x ... x (1 + Rn))^(1/n) - 1
where R1, R2, ..., Rn are the annual returns for each year.
Plugging in the numbers:
Geometric Average Return = ((1 + 0.06) x (1 + 0.13) x (1 - 0.11) x (1 + 0.17))^(1/4) - 1
Geometric Average Return = (1.08 x 1.13 x 0.89 x 1.17)^(1/4) - 1
Geometric Average Return = 1.057 - 1
Geometric Average Return = 0.057 or 5.7%
Therefore, the best choice is B.

A Share Had Returns of 6%, 13%, -11%, and 17