The Value Line Index is an equally weighted geometric average of the returns of about 1,700 firms.The value of an index based on the geometric average returns of 3 stocks where the returns on the 3 stocks during a given period were 32%,5%,and -10%,respectively,is __________.
A)4.3%
B)7.6%
C)9.0%
D)13.4%
E)5.0%

Question

Quizplus · Accepted Answer

To find the geometric average return, convert the percentages to decimal form and add 1 to each: (1.32), (1.05), (0.90). Multiply these values: 1.32 * 1.05 * 0.90 = 1.2474. Take the cube root (since there are 3 stocks): (1.2474)^(1/3) ≈ 1.076. Subtract 1 and convert back to a percentage: 0.076 or 7.6%.

The Value Line Index Is an Equally Weighted Geometric Average