Over the past 5 years, Buster’s had annual returns of 15.4 percent, -19.2 percen
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Question
Over the past 5 years, Buster’s had annual returns of 15.4 percent, -19.2 percent, 21.2 percent, 14.6 percent, and -12.1 percent. What is the geometric average rate of return?
2.98%
2.63%
19.90%
3.98%
Over the past 5 years, Buster’s had annual returns of 15.4 percent, -19.2 percent, 21.2 percent, 14.6 percent, and -12.1 percent. What is the arithmetic average rate of return?
2.98%
2.63%
3.98%
19.90%
Given the same annual investment returns for the same time period, which method results in a lower average annual return? (Hint: Base your answer on the calculations above.)
Geometric mean.
Variance.
Both arithmetic mean and geometric mean.
Arithmetic mean.
Explanation / Answer
Q. 2) The Arithmetic average rate of return = 15.4 + (-) 19.2 + 21.2 + 14.6 + (-) 12.1 / 5
= 19.9 / 5
= 3.98 %
Conclusion:- The Arithmetic average rate of return = 3.98 %.
Q. 1) The geometric average rate of return = 2.63 %
Q. 3) Given the same annual investment returns for the same time period, Geometric mean method results in a lower average annual return.
Conclusion:- Geometric mean method results in a lower average annual return.
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