Question

Suppose that an investor opens an account by investing $1,000. At the beginning of each of the next four years, he deposits an additional $1,000 each year, and he then liquidates the account at the end of the total five-year period. Suppose that the yearly returns in this account, beginning in year 1, are as follows: −9 percent, 17 percent, 9 percent, 14 percent, and −4 percent.

a. Calculate the arithmetic and geometric average returns for this investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Arithmetic Return _______%

Geometric Return_______%

b. Determine what the investor’s actual dollar-weighted average return was for this five-year period. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Dollar-weighted average return

Answer 1