A stock has had returns of 8 percent, 26 percent, 14 percent, -17 percent, 31 percent,...

Question

Question

A stock has had returns of 8 percent, 26 percent, 14 percent, -17 percent, 31 percent, and -1 percent over the last six years

Answer 1

Answer #1

Geometric Average Return = [(Product of Returns)⁽^{1/No of Years)}]- 1

Firstly, add 1 to each return and then multiply = 1.08*1.26*1.14*0.83*1.31*0.99

= 1.67

Now, Geometric Average Return = [(Product of Returns)⁽^{1/No of Years)}]- 1

= 1.67⁽^1/6) - 1

= 1.0892 - 1

= 0.0892 or 8.92%

Arithmetic Average Return = Sum of all the returns / No. of Count or Years

= (0.08 + 0.26 + 0.14 - 0.17 + 0.31 - 0.01) / 6

= 0.1017 or 10.17%

Your answer of Airthmetic Average Return is correct just refer the calculation of Geometric Average Return.

In case of any concern., leave a comment.

Will try to revert asap.

Answer 2

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