Asked by Keondra Jones on Apr 26, 2024
Verified
You have the following rates of return for a risky portfolio for several recent years. Assume that the stock pays no dividends.
What is the geometric average return for the period?
A) 2.87%
B) .74%
C) 2.6%
D) 2.21%
Geometric Average Return
A method for calculating the average rate of return on an investment, which accounts for the effects of compound interest.
Rates of Return
The gains or losses on an investment over a specified period, expressed as a percentage of the investment's cost.
- Comprehend the computation and significance of geometric mean returns.
Verified Answer
SJ
srajan jaiswalApr 27, 2024
Final Answer :
C
Explanation :
yr1 ![yr1 = 10% yr2 = 7.27% yr3 = 5.88% [(1.10)(1 + -.0727)(1.0588)]⅓ - 1 = 2.60%](https://d2lvgg3v3hfg70.cloudfront.net/TB6474/11eaaae8_8b6c_813e_a4b8_e3e0e189436a_TB6474_11.jpg)
= 10% yr2 ![yr1 = 10% yr2 = 7.27% yr3 = 5.88% [(1.10)(1 + -.0727)(1.0588)]⅓ - 1 = 2.60%](https://d2lvgg3v3hfg70.cloudfront.net/TB6474/11eaaae8_8b6c_a84f_a4b8_cdf38475975d_TB6474_11.jpg)
= 7.27% yr3 ![yr1 = 10% yr2 = 7.27% yr3 = 5.88% [(1.10)(1 + -.0727)(1.0588)]⅓ - 1 = 2.60%](https://d2lvgg3v3hfg70.cloudfront.net/TB6474/11eaaae8_8b6c_a850_a4b8_b3a7aad83ed9_TB6474_11.jpg)
= 5.88%
[(1.10)(1 + -.0727)(1.0588)]⅓ - 1 = 2.60%
= 10% yr2 = 7.27% yr3 = 5.88%[(1.10)(1 + -.0727)(1.0588)]⅓ - 1 = 2.60%
Learning Objectives
- Comprehend the computation and significance of geometric mean returns.
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