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Previous Page Next Page Page 30 of 42 Question 30 (1.25 points) ✓ Saved An investment had annual holding period returns of 8%, -5%, and 10% for the last three years. What are the geometric average of the rate of returns on the investment? a) 5.64% Ob) 3.58% 29% d) 4.12% 1.33% Previous Page Next Page Page 30 of 42

Answer 1

Solution L Returns for & last three years - R, 8. 03 0.08 R2 = -5.7. 07 -0.05 R3 = 100), 02 02 0,10 Time (n)= 3 Geometric Average Average Rate of Return =) +R3) -1 [[i+R1) I+R,) (1+R2) (1+6 [41+0.08) (1+6-0 [ (1.08) (0.95) (1.1)74 (1.1286)3 - 1 0.05)) (1+0.10) 1.0415011-) 11 0.04115011 O 4,115 011 7. oll Od 4:12). Answen

The right option is (d) 4.12%