Question: Hi there, for this question. I found the answer in excel sheet to be negative. is ther something wrong with my calculation: Using the approach
Hi there, for this question. I found the answer in excel sheet to be negative. is ther something wrong with my calculation:
Using the approach covered in your textbook calculate the geometric average annual rate of return over five years given the following annual rates, year 1 = 5.10%, year 2 = 4.95%, year 3 = 4.83%, year 4 = 4.75% and year 5 = 4.70% . What is the arithmetic average? Explain the difference.
(Rates as a percentage accurate to one basis point)
| By adding and multiplying all 5 years of annual rates | 1.27 | |
| 5th root for the annual rates | -0.746369514 | |
| Year | Percentage | Adding 1 to avoid negative in Geometric Rate of Return) |
| 1 | 0.0510 | 1.0510 |
| 2 | 0.0495 | 1.0495 |
| 3 | 0.0483 | 1.0483 |
| 4 | 0.0475 | 1.0475 |
| 5 | 0.0470 | 1.0470 |
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