The common stock of Western Hill Farms has yielded 16.3 percent, 7.2 percent, 11.8 percent, -3.6 percent, and 9.9 percent over the past five years, respectively. What is the geometric average return?

Question

Quizplus · Accepted Answer

The geometric average return formula is [(1+R1)*(1+R2)*...*(1+Rn)]^(1/n) - 1, where R1, R2, ..., Rn are the annual returns for each year. 
Using this formula, we get: 
[(1+0.163)*(1+0.072)*(1+0.118)*(1-0.036)*(1+0.099)]^(1/5) - 1 = 0.0809 or 8.11% (rounded to two decimal places). 
Therefore, the best choice is C, which is the closest option to 8.11%.

The Common Stock of Western Hill Farms Has Yielded 16