Question

Over the 10 year period from 2001-2018, the geometric average return for APPLE was 8.2 % and the arithmetic average return was 9.25 %. Compute average return forecasts for 1, 3, 7, 10, and 20 years into the futures.

Answer 1

To compute the average return forecasts, let us assume that the current price of APPLE is $100.

To compute the forecast for "y" years into the future, we do this :

• Arithmetic average return : $100 * (1+ 0.0925) ^ y
• Geometric average return : $100 * (1+ 0.082) ^ y

Average return forecasts :

	Arithmetic mean forecast	Geometric mean forecast
1 Year	108.20	109.25
3 Years	126.67	130.40
7 Years	173.62	185.76
10 Years	219.92	242.22
20 Years	483.67	586.72