A stock had returns of 12 percent,6 percent,13 percent,−11 percent,and −2 percent over the past five years.What is the geometric average return for this time period?
A)3.60 percent
B)3.19 percent
C)3.29 percent
D)3.62 percent
E)4.40 percent

Question

Quizplus · Accepted Answer

The geometric average return is calculated by multiplying the returns (expressed as decimals) for each period together, taking the nth root (where n is the number of periods), and then subtracting 1. Convert the percentages to decimals and apply the formula: [(1.12) * (1.06) * (1.13) * (0.89) * (0.98)]^(1/5) - 1 = 0.0319 or 3.19%.

A Stock Had Returns of 12 Percent,6 Percent,13 Percent,−11 Percent,and