A stock had returns of 10

Finance Dec 27, 2020

A stock had returns of 10.66 percent, −15.13 percent, 20.97 percent, 26.23 percent, and 9.17 percent over the past five years. What was the geometric average return for this stock?

Expert Solution

geometric average return = [(1 + rate1)(1 + rate2)(1 + rate3)(1 + rate4)(1 + rate5)]^1/periods - 1

geometric average return = [(1 + 0.1066)(1 - 0.1513)(1 + 0.2097)(1 + 0.2623)(1 + 0.0917)]^1/5 - 1

geometric average return = [1.1066 * 0.8487 * 1.2097 * 1.2623 * 1.0917)^1/5 - 1

geometric average return = [1.56563]^1/5 - 1

geometric average return = 1.0938 - 1

geometric average return = 0.0938 or 9.38%

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