Question

Claude is an investment adviser representative. One of his clients has recently bought and sold into and out of several investments. None of the investments were held for more than 6 months, and the investor is now asking Claude how to best compare the returns. Claude tells the client to annualize the returns. Why is annualizing the returns a good idea

Answer 1

Answer:

[A] Annualizing the returns would give the client the best representation of each individual investment and allow a better comparison of the performance of all of the investments side-by-side.

Explanation:

At the time when the holding period is varied so it provide the accurate and correct picture of returns, Also in the short periods without considering the annualizing it does not generate the best picture

With short terms returns it does not present the returns that is realized for a longer period of time but here the annualizing would not be same as if is comparing a holding period return with respect to the benchmark

Therefore in the given case, the option A is correct