A stock had returns of 12.4 percent, 16.6 percent, 10.2 percent, 19.0 percent, −15.7 percent, and 6.3 percent over the last six years. What is the geometric average return on the stock for this period?

Question

Quizplus · Accepted Answer

The geometric average return is calculated by multiplying all the returns (converted to decimal form and adding 1), taking the nth root (where n is the number of returns), and subtracting 1. The calculation is: [(1+0.124)*(1+0.166)*(1+0.102)*(1+0.190)*(1-0.157)*(1+0.063)]^(1/6) - 1 = 0.0746 or 7.46%.

A Stock Had Returns of 12