If a portfolio earned -10%, -20%, +40%, and +10% over the last four years, the geometric mean return per year is
A) -3.2%
B) 2.6%
C) 3.2%
D) 5.0%

Question

Quizplus · Accepted Answer

The geometric mean return is calculated by multiplying the returns for each year (expressed as decimals), taking the nth root (where n is the number of years), and subtracting 1. The calculation is: [(0.9 * 0.8 * 1.4 * 1.1)^(1/4)] - 1 = 0.026 or 2.6%.

If a Portfolio Earned -10%, -20%, +40%, and +10% Over