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Quantitative Methods Q99

0. Over the past five years, a portfolio gave returns of 18%, 12% -5%, -10% and 7%. The geometric mean return of the portfolio over the five year period is closest to:

  • Option : A
  • Explanation : Add one to each of the given returns, then multiply them together, then take the fifth root of the resulting product. 1.18 × 1.12 × 0.95 × 0.90 × 1.07 = 1.209066. 1.209066 raised to the 0.20 power is 1.0387. Subtracting one and multiplying by 100 gives the correct geometric mean return of 3.87%.
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