Question

An investment was worth $50 two years ago, $38, one year ago, and is worth $34 today. The arithmetic average return over the past two years is ____% per year.

Answer 1

We have given investment Worth of $50

After one Year, It is worth $38

So, The return will be = [(Value after one year - Initial Value)/ Initial Value] * 100

= [(38-50)/50] * 100

= (-12/50)*100

= -24%

Now, The $38 before one year is worth $34 at present

So, Return will be [(Value after one year - Initial Value)/ Initial Value] * 100

= [(34-38)/38]*100

= (-4/38)*100

= -10.526315%

Now, We will calculate the arithmetic average return

Arithmetic Average = (X1+X2)/2

Where X1 and the X2 are the returns that we calculated above:

So, Arithmetic Average =[ -24% + (-10.526315%)]/2

= (-24-10.526315)/2

= -34.526315/2

= -17.2631575%

The Arithmetic Average return is in negative which is -17.2631575%