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) 0.74%
C) 2.60%
D) 2.21%

Question

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) 0.74% 
C) 2.60% 
D) 2.21%

Quizplus · Accepted Answer

To find the geometric average return, we need to multiply all the annual returns together and take the nth root, where n is the number of years. In this case:

(1+0.12) * (1+0.08) * (1-0.03) * (1+0.09) * (1-0.02) = 1.143216
Geometric average return = (1.143216) ^ (1/5) - 1 = 0.0260 or 2.60%

Therefore, the answer is choice C.

You Have the Following Rates of Return for a Risky