An investment of $100 grows in four years to $345. The investor observes that the annual arithmetic rate of return and the geometric rate of return were the same over this period. The annual arithmetic rate of return must be ________.
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A. B. C. D. E.Explanation
If the annual geometric rate of return is r, then 100 * (1 + r)^4 = 345. This gives r = 36.29%. Note that the only way the mean will be equal to the geometric mean if every year, the stock experienced a return of 36.29% per year.