An investment of $100 grows in five years to $205. 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.B
If the annual geometric rate of return is r, then 100 * (1 + r)^5 = 205. This gives r = 15.44%. Note that the only way the mean will be equal to the geometric mean if every year, the stock experienced a return of 15.44% per year.