Question

You own a stock that had returns of 12.18 percent, −16.82 percent, 21.78 percent, 25.52 percent, and 9.48 percent over the past five years. What was the arithmetic average return for this stock? Option 1: 6.5% Option 2: 7.2% Option 3: 8.1% Option 4: 8.7%

Answer 1

The correct answer is Option 2: 7.2%.

Explanation:

To calculate the arithmetic average return for the stock, we need to sum up the returns over the past five years and divide the total by the number of years.

The returns for the past five years are 12.18%, -16.82%, 21.78%, 25.52%, and 9.48%.

The arithmetic average return is calculated as follows:

(12.18% - 16.82% + 21.78% + 25.52% + 9.48%) / 5

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Evaluating this expression gives us a result of 8.228%.

Therefore, the correct answer is Option 2: 7.2%.