Asked by Tycen Martin on May 10, 2024
Verified
A portfolio earned annual rates of 18%, 25%, -5%, -5%, and 12% in five successive years. The portfolio's equivalent annual compounded rate of return is 20%.
Equivalent Annual Compounded
The annual interest rate that is equivalent to the nominal rate compounded more frequently than once a year.
Rate of Return
The profit or deficit experienced on an investment, calculated over a particular duration and shown as a fraction of the investment's original value.
- Calculate the actual return on investment across various time spans, considering different rates and the frequency of compounding.
Verified Answer
SE
Sophia EstradaMay 11, 2024
Final Answer :
False
Explanation :
The equivalent annual compounded rate of return, also known as the geometric mean, is calculated by multiplying the annual rates of return (plus one), taking the nth root (where n is the number of years), and then subtracting one. The given rates do not yield a 20% compounded annual growth rate when calculated correctly.
Learning Objectives
- Calculate the actual return on investment across various time spans, considering different rates and the frequency of compounding.