The S&P TSX Composite index delivered annual returns of 10.55%,-8.32%,21.08% and 9.10% from 2014 to 2017.What was the average compound annual return per year?
A)7.5%
B)6.3%
C)7.6%
D)7.0%
E)6.6%

Question

Quizplus · Accepted Answer

To calculate the compound annual return, we use the formula:

[(1+r1) × (1+r2) × (1+r3) × (1+r4)]^(1/4) - 1

Where r1, r2, r3 and r4 are the annual returns for each year.

Using the numbers given in the question, we get:

[(1+0.1055) × (1-0.0832) × (1+0.2108) × (1+0.0910)]^(1/4) - 1
= 1.076 - 1
= 0.076 or 7.6%

Therefore, the average compound annual return per year is 7.6%, which is closest to option C).

The S&P TSX Composite Index Delivered Annual Returns of 10