Over the past 4 years, a common stock has had the following rates of return: 3.5%, 10.6%, -5.5% and8.6%. The geometric mean rate of return (rounded to one decimal) over these 4 years is
A) 5.6%
B) 6.4%
C) 4.1%
D) 4.7%

Question

Quizplus · Accepted Answer

The geometric mean is calculated by multiplying the returns (converted to decimal form) and taking the fourth root, then subtracting 1 and converting back to a percentage. The calculation is: [(1+0.035)*(1+0.106)*(1-0.055)*(1+0.086)]^(1/4) - 1 = 0.041 or 4.1%.

Over the Past 4 Years, a Common Stock Has Had