A portfolio earned annual rates of 18%, 25%, -5%, -5%, and 12% in five successive years. The portfolio's equivalent annual compounded rate of return is 20%.

Question

Quizplus · Accepted Answer

The equivalent annual compounded rate of return, also known as the geometric mean, is calculated by multiplying the annual rates of return (plus one), taking the nth root (where n is the number of years), and then subtracting one. The given rates do not yield a 20% compounded annual growth rate when calculated correctly.

A Portfolio Earned Annual Rates of 18%, 25%, -5%, -5