Question

The S&P 500 index delivered a return of 25%, 15%, -35%, and -5% over four successive years.
What is the arithmetic average annual return for four years?
A) -5%
B) 0%
C) 5%
D) 3%

Answer 1

Answer:

arithmetic average annual return is 0

correct option is B) 0%

Explanation:

given data

return r1 = 25%

return r2 = 15%

return r3 = -35%

return r4 =  -5%

to find out

What is the arithmetic average annual return for four years

solution

we know that arithmetic average annual return is express as

$\bar{X} = \frac{\sum x}{N}$     .........................1

here $\bar{X}$ is arithmetic mean and ∑x is sum of return and N is number of observation i.e 4

so put here value in equation 1 we get

$\bar{X} = \frac{25+15-35-5}{4}$

$\bar{X}$ = 0

so arithmetic average annual return is 0

correct option is B) 0%