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Homework answers / question archive / What is the geometric average return of a stock that returned 18%, -30%, 44%, -13% and 28% over the last 5 years? Enter your answer rounded to two decimal places

What is the geometric average return of a stock that returned 18%, -30%, 44%, -13% and 28% over the last 5 years? Enter your answer rounded to two decimal places

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What is the geometric average return of a stock that returned 18%, -30%, 44%, -13% and 28% over the last 5 years? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.

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Computation of Geometric Average Return of a Stock:

Geometric Average Return = { (1 + r1) * (1 + r2) * .............( 1 + rn) } 1/n - 1

Here,

n = Number of periods or years

r = Rate of return on stock

As per the information given n the question we have n =5;

r1 = 18 %  ; r2 = -30 % ;  r3 = 44% ;  r4 = -13%   r5 = 28%

 

 

Geometric Average Return = { ( 1 + 0.18) * ( 1 - 0.30 ) * ( 1 + 0.44 ) * ( 1 - 0.13 ) * (1 + 0.28 ) } 1/5 - 1

= ( 1.18 * 0.70 * 1.44 * 0.87 * 1.28 ) 1/5 - 1

=( 1.32456 )1/5 - 1

= 1.0578 - 1

Geometric Average Return = 0.0578 or 5.78%

 

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