What are the arithmetic and geometric average returns for a stock with annual returns of 21%,8%,-32%,41%,and 5%?
A)5.6%; 8.6%
B)5.6%; 6.3%
C)8.6%; 5.6%
D)8.8%; 6.1%
E)8.6%; 6.3%

Question

Quizplus · Accepted Answer

Arithmetic average return = (21%+8%+(-32%)+41%+5%)/5 = 8.6%
Geometric average return = [(1+21%)(1+8%)(1-32%)(1+41%)(1+5%)]^(1/5) - 1 = 5.6%.
Therefore, choice C, 8.6% and 5.6%, is the correct answer.

What Are the Arithmetic and Geometric Average Returns for a Stock