If an investor purchased a stock and held it for three years, earning 20% the first year; 10% , the second; and 8%, the third, what was the annual arithmetic return?
A) 10%
B) 8%
C) 6%
D) 4%

Question

Quizplus · Accepted Answer

The formula for calculating the annual arithmetic return is to take the average of the annual returns.

Annual return for the first year = 20%
Annual return for the second year = 10%
Annual return for the third year = 8%

Average annual return = (20% + 10% + 8%) / 3 = 6%

Therefore, the annual arithmetic return is 6%.

If an Investor Purchased a Stock and Held It for Three