A stock had annual returns of 6%, -12%, 8%, and 14% over the past four years. The arithmetic average of these returns is percent while the geometric average return for the period is percent.

A. 4.00; 3.52
B. 4.00; 4.00
C. 4.00; 7.17
D. 8.00; 3.52
E. 8.00; 7.17

To find the arithmetic average, we simply add up all the returns and divide by the number of periods: Arithmetic Average = (6 + (-12) + 8 + 14) / 4 = (6 - 12 + 8 + 14) / 4 = 16 / 4 = 4.00%

To find the geometric average return, we use the formula: Geometric Average = [(1 + R1) * (1 + R2) * (1 + R3) * (1 + R4)](1/n) - 1 Where R1, R2, R3, and R4 are the returns, and n is the number of periods:

Geometric Average = [(1 + 0.06) * (1 - 0.12) * (1 + 0.08) * (1 + 0.14)] (1/4) - 1 = (1.06 * 0.88 * 1.08 * 1.14) (1/4) - 1 = (1.14013) (1/4) - 1 ≈ 0.03326 or 3.33%

Therefore, the correct answer is A. 4.00; 3.33.

A stock had annual returns of 6%, -12%, 8%, and 14% over the past four years. The arithmetic average of these returns is percent while the geometric average return for the period is percent.A. 4.00; 3.52 B. 4.00; 4.00 C. 4.00; 7.17 D. 8.00; 3.52 E. 8.00; 7.17

Answer :

Other Questions

A stock had annual returns of 6%, -12%, 8%, and 14% over the past four years. The arithmetic average of these returns is percent while the geometric average return for the period is percent.

A. 4.00; 3.52
B. 4.00; 4.00
C. 4.00; 7.17
D. 8.00; 3.52
E. 8.00; 7.17