Chapter 12, Problem 21QP

Summary Introduction

To determine: The future annual returns over five years.

Introduction:

Arithmetic average return refers to the returns that an investment earns in an average year over different periods. Geometric average return refers to the return per year after compounding the average returns for multiple years.

Person B’s formula helps in deriving a return forecast by combining both the arithmetic and geometric averages. Person B’s formula states that the investors should use a combination of arithmetic and geometric average return for forecasting a few decades. This would be helpful for retirement planning.

Summary Introduction

To determine: The future annual returns over twenty years.

Summary Introduction

To determine: The future annual returns over thirty years.