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

7 year return = ((1 +geometric return ) ^(7/86) -1)*100

= ((1 +8.8/100 ) ^(7/86) -1)*100 = 0.69%

21 year return = ((1 +geometric return ) ^(21/86) -1)*100

= ((1 +8.8/100 ) ^(21/86) -1)*100 = 2.08%

28 year return = ((1 +geometric return ) ^(28/86) -1)*100

= ((1 +8.8/100 ) ^(28/86) -1)*100 = 2.78%

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