Question

A stock produced total returns of 15%, 12%, -20%, and 36% over the past four years, respectively. What is the geometric average return? Select one: a. 6.30% b. 7.60% c. 5.83% d. 2.44% e. 2.04%

Bond ratings issued by Moody’s specifically account for interest rate risk.

Select one:

True

False

Answer 1

Solution.>

Part a> Geometric average return = ((1+r1)*(1+r2)*(1+r3)*(1+r4))^(1/n) - 1

where r1,r2,r3 and r4 are returns for 4 years and n is the no of years

Geometric average return = ((1+15%)*(1+12%)*(1-20%)*(1+36%))^(1/4) - 1

Geometric average return = 8.8%

Please check with the options provided as this is the correct answer.

Part b> The above statement is FALSE.

Bond ratings issued by Moody’s does not specifically account for interest rate risk, but it also based on several other factors.

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