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If the index value when you invested first in the equity market seven years back is...

If the index value when you invested first in the equity market seven years back 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?

Solutions

Expert Solution

Initial Index Value, I0 = 32,000

Number of years, n = 7

Final Index value, I1 = 40,000

Holding period return = (I1 - I0)/ I0 = (40,000 - 32,000)/32,000 = 25%

Geometric Average Annual Return = ( I1/I0)^1/n -1 = [ (40,000/32,000)^1/7] -1

= 3.239% = 3.24%

jeff jeffy answered 2 years ago
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