Question

During the period from 2011 through 2015 the annual returns on small U.S. stocks were -3.60 percent, 18.19 percent, 45.15 percent, 3.14 percent, and -4.20 percent, respectively.

What would a $1 investment, made at the beginning of 2011, have been worth at the end of 2015? (Round answer to 3 decimal places, e.g. 52.750.)

What average annual return would have been earned on this investment? (Round answer to 2 decimal places, e.g. 52.75.)

Answer 1

Part A:

Future Value = Investement ( 1 + r1) ( 1 +r2) (1 + r3) ( 1 +r4 ) ( 1 + r5 )

= $ 1 ( 1 - 0.0360) ( 1 + 0.1819 ) ( 1 + 0.4515 ) ( 1 + 0.0314 ) ( 1 - 0.0420 )

= $ 1 ( 0.964) ( 1.1819 ) ( 1.4515 ) ( 1.0314 ) ( 0.958 )

= $ 1 ( 1.6341 )

= $ 1.634

Value of $ 1 at 2015 is $ 1.634

Part B:

Average Return:

It is simple arithmatical average of returns generated over period of time.

Avg Ret = Sum [ X ] / n

Year	Ret
1	-3.60%
2	18.19%
3	45.15%
4	3.14%
5	-4.20%
Sum [ Ret ]	58.68%
No. of Years	5.00
Avg Ret	11.74%