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You have calculated the historical dollar-weighted return, annual geometric average return, and annual arithmetic average return. You always reinvest your dividends and interest earned on the portfolio. Which method provides the best measure of the actual average historical performance of the investments you have chosen?
A. Dollar-weighted return
B. Geometric average return
C. Arithmetic average return
D. Index return

Respuesta :

jepessoa

Answer:

The answer is: B) Geometric average return

Explanation:

Geometric average return is more popularly known as geometric mean return.  It is the average rate of return of an investment held for multiple periods, so that income is compounded.

The formula for calculating geometric average return is:

                       = [(1 + R1) × (1 + R2) × ... × (1 +Rn)](1/n) - 1

where,

  • R1, R2 to Rn are sub-period returns for periods 1, 2 to n
  • N is the total number of sub-periods

If you know how to use Excel, you can calculate this using the GEOMEAN function.

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