What is the geometric average rate of return based on the following series of annual returns for XYZ Co?

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What is the geometric average rate of return based on the following series of annual returns for XYZ Co?

 Year    Return
1 18%
2 -3%
3 27%
4 5%
5 -36%
6 14%
7 8%
8 1%

Answer Choices:

  2.46%

 

  3.56%

 

  102.5%

 

  4.0%

 

0

Answer :

Working notes for the above answer is under

First of all let us understand the geometric Return. It is   mean return formula  which is  used to calculate the average rate per period on an investment that is compounded over multiple periods. The geometric mean return may also be referred to as the geometric average return

Formula of geometric average rate of return is as follow

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