If an investor holds a stock for six years,the value at the end of six years will be the initial cost times (1 + geometric average return)to the sixth power.

Question

Quizplus · Accepted Answer

The formula used to calculate the value of a stock after a certain period of time is given as V = C(1+r)^n where V is the final value of the stock, C is the initial cost, r is the annual rate of return and n is the number of years. In this case, since the investor is holding the stock for 6 years, the formula would be V = C(1+r)^6. However, since the question specifically asks for the geometric average return, we can use the formula G = (R1*R2*R3*...*Rn)^(1/n) where G is the geometric average return and R1 to Rn are the annual returns for each year. We can then use the formula V = C(1+G)^n to find the value of the stock after 6 years. Therefore, the statement given in the question is true.

If an Investor Holds a Stock for Six Years,the Value