Over the past five years, an investment produced annual returns of 16.5, 21, −18, 4, and 17 percent, respectively. What is the geometric average return?

Question

Quizplus · Accepted Answer

The formula for the geometric average return is:
Geometric average return = [(1+r1) x (1+r2) x ... x (1+rn)]^(1/n) - 1
 
Plugging in the annual returns given in the question, we get:
[(1+0.165) x (1+0.21) x (1-0.18) x (1+0.04) x (1+0.17)]^(1/5) - 1 
= 1.0706 - 1
= 0.0706 or 7.06%
Therefore, the answer is choice B.

Over the Past Five Years, an Investment Produced Annual Returns