USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The annual rates of return of Stock Z for the last four years are 0.10, 0.15, -0.05, and 0.20, respectively.
-Refer to Exhibit 1.8. Compute the geometric mean rate of return for Stock Z.
A) 0.051
B) 0.074
C) 0.096
D) 0.150
E) 1.090

Question

Quizplus · Accepted Answer

Geometric mean rate of return can be calculated as ((1+R1) x (1+R2) x ... x (1+Rn))^1/n -1, where R1 through Rn are the annual rates of return. 
Using this formula, we get 
(((1+0.10) x (1+0.15) x (1-0.05) x (1+0.20))^1/4 -1 = 0.096 
Therefore, the correct answer is C) 0.096.