The geometric average rate of return after four years of investment returns of 7%, 12%, 15%, and 8% is 13%.

Question

Quizplus · Accepted Answer

The geometric average rate of return is calculated by multiplying the returns (expressed as decimal plus one), taking the nth root (where n is the number of years), and then subtracting one. For these returns, it would be [(1.07 * 1.12 * 1.15 * 1.08)^(1/4)] - 1, which does not equal 13%.

The Geometric Average Rate of Return After Four Years of Investment