Geometric Rate of Return Calculator

Calculate the Geometric Rate of Return

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Question

A stock had the following percentage increases in its value over the last 5 years: 7%, 4%, 12%, 10%, 15%. The geometric rate of return on the stock equals

________.

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Explanations

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A. B. C. D.

Explanation

The geometric rate of change equals (1.04*1.07*1.1*1.15*1.12)^(1/5) - 1 = 9.53%. Note this is different from the straight geometric mean, which in this case would be (0.04*0.07*0.1*0.15*0.12)^(1/5) = 8.72%. You should be very careful about this point since the Mason & Lind textbook is quite ambiguous on this point.

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