The Value Line Index is an equally-weighted geometric average of the returns of about 1,700 firms.The value of an index based on the geometric average returns of three stocks where the returns on the three stocks during a given period were 32%, 5%, and-10%, respectively, is
A)4.3%.
B)7.6%.
C)9.0%.
D)13.4%.

Question

Quizplus · Accepted Answer

The geometric average return is calculated by multiplying the returns (1.32 * 1.05 * 0.90) and then taking the cube root (since there are three stocks), and subtracting 1. This results in approximately 7.6%.

The Value Line Index Is an Equally-Weighted Geometric Average of the Returns