Question

During the period from 2011 through 2015 the annual returns on small U.S. stocks were -3.20 percent, 18.10 percent, 45.00 percent, 2.90 percent, and -3.20 percent, respectively What would a $1 investment, made at the beginning of 2011, have been worth at the end of 2015? (Round answer to 3 decimal places, e.g. 52.750.) Value in 2015 What average annual return would have been earned on this investment? (Round answer to 2 decimal places, e.g. 52.75 Average annual return percent per year

Answer 1

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

a.A=$1(1-0.032)(1+0.181)(1+0.45)(1+0.029)(1-0.032)

=$1.651(Approx).

b.Average annual return=Total return/Total time period

=(-3.2+18.1+45+2.9-3.2)/5

=11.92 percent per year.