The common stock of Petersen and White Importers yielded returns of 42%, -5%, -18%, 9%, and 12% over the past 5 years, respectively. The arithmetic average return for this period of time is _____%
While the geometric average return is _____%.

Question

Quizplus · Accepted Answer

The arithmetic average return is the sum of the returns divided by the number of years. In this case, the arithmetic average return is (42% - 5% - 18% + 9% + 12%) / 5 = 8%.The geometric average return is the nth root of the product of the returns. In this case, the geometric average return is (42% * -5% * -18% * 9% * 12%) ^ (1/5) = 6.19%.

The Common Stock of Petersen and White Importers Yielded Returns