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Iftheindexvaluewhen youinvestedfirstinthe equitymarketseven yearsback is 32,000 and the current index levels are at 40,000, what is...

Iftheindexvaluewhen youinvestedfirstinthe equitymarketseven yearsback is 32,000 and the current index levels are at 40,000, what is the holding period re- turn? What is the geometric average annual return that you would communicate to your friend on your investment?

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Expert Solution

Holding period return = (Current value - Invested value) / Invested value

= (40000 - 32000) / 32000

= 25%

Geometric return over 7 years = (40000/32000)^(1/7) - 1

= 1.25^(1/7) - 1

= 0.0324

Or 3.24%

jeff jeffy answered 2 years ago
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