A portfolio manager generates a 5% return in 2008,a 12% return in 2009,a negative 6% return in 2010,and a return of 2% (nonannualized)in the first quarter of 2011.The annualized return for the entire period is theclosest to _______.
A) 3.05%
B) 3.25%
C) 3.50%
D) 3.77%

Question

Quizplus · Accepted Answer

The annualized return for the entire period is closest to 3.77%. This is calculated by taking the geometric mean of the returns for each period. The geometric mean is calculated by multiplying the returns together and then taking the nth root, where n is the number of periods. In this case, the geometric mean is calculated as follows:(1.05 * 1.12 * 0.94 * 1.02)^(1/4) = 1.0377This is closest to 3.77%.

A Portfolio Manager Generates a 5% Return in 2008,a 12