Matt James is assessing the performance of his portflio over the last four years.In computing the average return, he decides to use the geometric average retum since it provides a more conservative retum than the arithmetic mean. The annual retums on his portfolio over each ofthe last four years were 50%, 30%,-25%, and -15%. The geometic average return is then closest to:
A. 5.44%.
B. 5.59%.
C. 8.56%.
D. 10.00%.
Answer:B
gp =[(1.50)*(1.30)*(0.75)*(0.85)]^ 1/4-1=5.59%