Question

You have invested in a stock portfolio that has earned rates of returns of 4.1%, 11.6%, -1.8%, -17.6%, -19.5% in the past five consecutive years. What is the difference between your true annualized holding rate of return and your average rate of return? (Express the average rate - annualized rate in terms of basis points.)

Answer 1

Difference between true annualized holding rate of return and average return=(4.1%+11.6%-1.8%-17.6%-19.5%)/5-(((1+4.1%)*(1+11.6%)*(1-1.8%)*(1-17.6%)*(1-19.5%))^(1/5)-1)=0.78205% or 78.205 basis points