The S&P 500 index delivered a return of 20%, -5%, 20%, and 5% over four successive years. What is the arithmetic average annual return per year? O A. 10% OB. 11% O C. 12% D. 15%

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
icon
Concept explainers
Topic Video
Question
**Arithmetic Average Annual Return Calculation: S&P 500 Case Study**

**Question:**
The S&P 500 index delivered a return of 20%, -5%, 20%, and 5% over four successive years. What is the arithmetic average annual return per year?

**Options:**
- **A.** 10%
- **B.** 11%
- **C.** 12%
- **D.** 15%

**Explanation:**
To calculate the arithmetic average annual return, sum up the annual returns and divide by the number of years.

The returns over the four years are:
- Year 1: 20%
- Year 2: -5%
- Year 3: 20%
- Year 4: 5%

**Step-by-Step Solution:**
1. Sum the returns:
\[ 20\% + (-5\%) + 20\% + 5\% = 40\% \]

2. Divide by the number of years (4 years):
\[ \text{Arithmetic Average Annual Return} = \frac{40\%}{4} = 10\% \]

Thus, the correct answer is:
**A. 10%**
Transcribed Image Text:**Arithmetic Average Annual Return Calculation: S&P 500 Case Study** **Question:** The S&P 500 index delivered a return of 20%, -5%, 20%, and 5% over four successive years. What is the arithmetic average annual return per year? **Options:** - **A.** 10% - **B.** 11% - **C.** 12% - **D.** 15% **Explanation:** To calculate the arithmetic average annual return, sum up the annual returns and divide by the number of years. The returns over the four years are: - Year 1: 20% - Year 2: -5% - Year 3: 20% - Year 4: 5% **Step-by-Step Solution:** 1. Sum the returns: \[ 20\% + (-5\%) + 20\% + 5\% = 40\% \] 2. Divide by the number of years (4 years): \[ \text{Arithmetic Average Annual Return} = \frac{40\%}{4} = 10\% \] Thus, the correct answer is: **A. 10%**
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 1 images

Blurred answer
Knowledge Booster
Stock Valuation
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education