A stock has an average arithmetic return of 12.55 percent and an average geometric return of 12.40 percent based on the annual returns for the last 15 years. What is projected average annual return on this stock for the next 10 years?
A) 12.17 percent
B) 12.21 percent
C) 12.38 percent
D) 12.50 percent
E) 12.69 percent

Question

Quizplus · Accepted Answer

The geometric return is a more accurate measure of the average annual return of a stock, as it takes into account the compounding effect of returns over time. Therefore, the projected average annual return on this stock for the next 10 years is 12.40 percent.

A Stock Has an Average Arithmetic Return of 12