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You own a stock which has produced annual returns of 11 percent, 3 percent, 8 percent, and 14 percent over the past four years, respectively. The arithmetic rate of return is _____ percent and the geometric rate of return is _____ percent.A) 8.50; 8.92B) 8.50; 18.92C) 9.00; 8.92D) 9.00; 9.92E) 9.00; 18.92

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Answer:

C) 9.00; 8.92

Explanation:

The arithmetic rate of return is given by:

[tex]R_{A} = \frac{11+3+8+14}{4} \\R_{A} = 9.00[/tex]

The geometric rate of return is given by:

[tex]R_{G} =  (\sqrt[4]{(1.11*1.03*1.08*1.14)} -1) *100 \%\\R_{G} =  (1.0892-1) *100 \%\\R_{G} =  8.92[/tex]

Therefore, the arithmetic rate of return is 9.00 percent and the geometric rate of return is 8.92 percent

The answer is C) 9.00; 8.92.

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