Question

If you start with $1,000 and earn 100% in year 1, lose 50% in year 2, and repeat the year 1 and year 2 returns for 10 years, then what is your average annual return and compound annual return for the 10-year period?

Answer 1

Year	Earn
1	1000
2	500
3	1000
4	500
5	1000
6	500
7	1000
8	500
9	1000
10	500

Annual Net Earning = $ 7500

Average Annual Net Earning = $ 7500 / 10 = $ 750

Intitial Investment = $ 1000

Salvage Value = 0

Annual Return = ( 7500 - 1000) *10 /1000 *100 = 65%

Compound Annual Return ( Ending Balance / Inititial Balance ) ^1/n -1

( 7500 /1000) ^1 /10 -1 = 22.32%