Question

The S&P 500 index delivered a return of 20%, -10%, 20%, and 5% over four successive years.

Answer 1

Answer:

C) 8.75%

Explanation:

Number of periods = 4 years

Given return rates = 20%, -10%, 20%, and 5%

To obtain the arithmetic average annual return, add the return rates given for all periods and divide the sum by the number of periods.

$AAR = \frac{20-10+ 20+ 5}{4} \\AAR=8.75\%$

Over four years, the S&P 500 index delivered an arithmetic average annual return of 8.75%.