Answer:
Arithmetic average return = 6.25%
Geometric average return = 5.89%
Explanation:
Annual returns of 4%, 9%, -6% and 18%
Arithmetic average return of the stock = ∑ 4%,9%,-6%,and 18% / n
= 25%/4
= 6.25%
Geometric average return formula = x1,*x2*x3 .....^1/n - 1
Geometric average return = 1.04*1.09*(1-0.06)*1.18^1/4 -1
Geometric average return = 1.04*1.09*0.94*1.18^1/4 - 1
Geometric average return = 1.25789^1/4-1
Geometric average return = 1.0589 - 1
Geometric average return = 0.0589
Geometric average return = 5.89%
