What are the arithmetic and geometric average returns for a stock with annual returns of 5%,8%,-3%,and 16%?
A) 6.5%; 6.28%
B) 6.5%; 9.21%
C) 9.3%; 6.28%
D) 9.3%; 9.21%
E) 10.25%; 8.31%

Question

Quizplus · Accepted Answer

The arithmetic average return is calculated as the sum of the returns divided by the number of returns: (5% + 8% - 3% + 16%) / 4 = 6.5%. The geometric average return is calculated as the nth root of the product of (1 + each return), minus 1: [(1.05 * 1.08 * 0.97 * 1.16)^(1/4)] - 1 = 6.28%.

What Are the Arithmetic and Geometric Average Returns for a Stock