What are the arithmetic and geometric average returns for a stock with annual returns of 4%,9%,-6%,and 18%?
A) 5.89%; 6.25%
B) 6.25%; 5.89%
C) 6.25%; 8.33%
D) 8.3%; 5.89%
E) 8.3%; 6.25%

Question

Quizplus · Accepted Answer

Arithmetic average return = (4% + 9% - 6% + 18%) / 4 = 6.25%
Geometric average return = [(1 + 0.04) x (1 + 0.09) x (1 - 0.06) x (1 + 0.18)]^(1/4) - 1 = 5.89%

Therefore, the correct answer is B.

What Are the Arithmetic and Geometric Average Returns for a Stock