An asset has had an arithmetic return of 10.8 percent and a geometric return of

Question

An asset has had an arithmetic return of 10.8 percent and a geometric return of 8.8 percent over the last 86 years. What return would you estimate for this asset over the next 7 years? 21 years? 28 years? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

An asset has had an arithmetic return of 10.8 percent and a geometric return of 8.8 percent over the last 86 years. What return would you estimate for this asset over the next 7 years? 21 years? 28 years? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation / Answer

formula for GM = {(1+r1) x (1+r2) x (1+r3) x ......... x (1+r86)}1/86-1

Here r1=r2=r3=..................=r84=r85=r86=r

So 0.088 = {(1+r)86}1/86-1

or 1+0.088= {(1+r)86}1/86

This means r = 8.8%

Future annual returns Total years Formula Future Returns 7 =(1+8.8/100)7-1 0.804688569 21 =(1+8.8/100)21-1 4.877691702 28 =(1+8.8/100)28-1 9.607403027

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