Question

You have the following rates of return for a risky portfolio for several recent years:
2011: 35.23%
2012: 8.67%
2013: -9.87%
2014: 23.45%
The annualized (geometric) average return on this investment is _____.

	16.15%
	16.87%
	21.32%
	15.60%

Answer 1

Returns: 2011 = 35.23% | 2012 = 8.67% | 2013 = -9.87% | 2014 = 23.45%

Geometric Mean Return formula = ((1+R1)*(1+R2)*(1+R3)*(1+R4))^1/4 - 1

Geometric Mean return of the investment = ((1+35.23%)*(1+8.67%)*(1-9.87%)*(1+23.45%))^1/4 - 1

Geometric Mean return of the investment = (1.3523*1.0867*0.9013*1.2345)^1/4 - 1

Geometric Mean return of the investment = (1.63509571507689)^1/4 - 1

Geometric Mean return of the investment = 1.1308 - 1

Geometric Mean return of the investment = 13.08%

Hence, The Geometric mean of the investment is 13.08%