Over the last four years, a stock has had an arithmetic average return of 8.8 percent. Three of those four years produced returns of 16.3 percent, 10.2 percent, and -14.1 percent. What is the geometric average return for this 4-year period?

Question

Quizplus · Accepted Answer

The geometric average return is calculated by multiplying the returns for each year (expressed as decimals), taking the fourth root (since there are four years), and then subtracting 1. The missing year's return can be found using the arithmetic average, and then the geometric mean can be calculated.

Over the Last Four Years, a Stock Has Had an Arithmetic