Consider a project that provides a return of 2 percent in the first year, 10 percent in the second year, 15 percent in the third year, and 3 percent in the fourth year. The geometric mean return over these four years is closest to:
A) 1.07%
B) 7.37%
C) 7.50%
D) 32.90%

Question

Quizplus · Accepted Answer

The geometric mean return is calculated by multiplying the returns (expressed as a decimal plus one), taking the nth root (where n is the number of returns), and then subtracting one and converting back to a percentage. Here, it's ((1.02 * 1.10 * 1.15 * 1.03)^(1/4)) - 1, which is approximately 0.0737 or 7.37%.

Consider a Project That Provides a Return of 2 Percent