Joanne invested $15,000 six years ago. Her arithmetic average return on this investment is 8.72 percent, and her geometric average return is 8.50 percent.
Joanne's portfolio worth today:-
USE GEOMETRIC RETURN.
8.5%
108.5%
108.5% ^ 6 years = 1.6315
$15,000 x 1.6315 = $24,472
The mathematical average of a series of returns that have accumulated over time is known as the average return. The total return throughout a time period divided by the total number of periods is the definition of average return in its simplest form.
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