Over the course of three years, an investment had annual returns of 20%, -30%, and 40%

Finance Dec 22, 2020

Over the course of three years, an investment had annual returns of 20%, -30%, and 40%. What is the arithmetic average annual return of this investment over the three-year period? A) 4% B) 6% C) 8% D) 10%

Expert Solution

Annual Return over 3 years are 20%, -30% & 40%

Arithmetic Average Annual Return = (r1 + r2 + r3)/3 = (20% - 30% + 40%)/3

Arithmetic Average Annual Return = 30%/3

Arithmetic Average Annual Return = 10%

Option D

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