You have an asset that has an arithmetic average return of 10.9 percent over the past five years. The annual returns for four years were 8%, 16%, - 9%, and 13%. What was the asset's return for the fifth year?
A) 15.6%
B) 17.8%
C) 20.7%
D) 22.8%
E) 26.5%

Question

Quizplus · Accepted Answer

To find the asset's return for the fifth year, we first calculate the total return over the five years using the arithmetic average return formula. The arithmetic average return is given as 10.9%. Over five years, the total return would be 10.9% * 5 = 54.5%. The returns for the first four years are 8%, 16%, -9%, and 13%, which sum up to 28%. To achieve a total return of 54.5% over five years, the return for the fifth year must make up the difference between 54.5% and 28%, which is 26.5%.

You Have an Asset That Has an Arithmetic Average Return