Question

calculate the arithmetic average return and the geometric average return using the following returns

2011 +7.6%

2012 -4.2%

2013 +7.6%

2014 -1.8%

Answer 1

Arithmetic return = (0.076 - 0.042 + 0.076 - 0.018)/4

Arithmetic return = 0.023 = 2.3%

Geometric return = [(1 + 0.076) * (1 - 0.042) * (1 + 0.076) * (1 - 0.018)]^(1/4) - 1

Geometric return = 0.02158706378 = 2.158706378%

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