Three years ago your return was 4%. Two years ago your return was 14%. One year

ID: 2653133 • Letter: T

Question

Three years ago your return was 4%. Two years ago your return was 14%. One year ago your return was -11%.. Which statement is correct?

Select one:

a. The geometric average return is 1.81% and the annual arithmetic average return is 2.3%

b. The geometric average return is 5.52%and the annual arithmetic average return is 5.4%

c. The geometric average return is 1.62% and the annual arithmetic average return is 5.4%

d. The geometric average return is 5.52% and the annual arithmetic average return is 2.3%

e. The geometric average return is 3.6% and the annual arithmetic average return is 6.8%

Airthematic Return = (x1+x2+x3)/3

=> (4+14-11)/3 = 2.3%

Geometric Mean = {(1+x1)(1+x2)(1+x3)}^1/3-1

=> (1.04*1.14*0.89)^1/3 - 1 = (1.055)^1/3 - 1

=> 1.01806-1 = 0.01806 = 1.81

therefore Option 'a' is true

i.e., Geometric Average return is 1.81% and Airthematic Average returnis 2.3%

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.