Question

Suppose that a stock gave a realized return of 20% over a two-year time period and a 10%

Answer 1

Answer:

Option (D) 16.57%

Explanation:

Data provided in the question:

Realized gain

r₁ = 20%

r₂ = 20%

r₃ = 10%

Now,

Geometric average = $[(1+r_1)\times(1+r_2)\times...\times(1+r_n)]^{\frac{1}{n}}$ - 1

here,

n = 3

therefore,

Geometric average = $[(1+0.20)\times(1+0.20)\times(1+0.10)]^{\frac{1}{3}}$ - 1

or

Geometric average = $[1.584]^{\frac{1}{3}}$ - 1

or

Geometric average = 1.1657 - 1

or

Geometric average = 0.1657

= 0.1657 × 100%

= 16.57%