Return higher or lower than the geometric average return

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Reference no: EM131813768

Suppose that an investor opens an account by investing $1, 000. At the beginning of each of the next four years, he deposits an additional $1, 000 each year, and he then liquidates the account at the end of the total five-year period. Suppose that the yearly returns in this account, beginning in year 1, are as follows: -9 percent, 17 percent, 9 percent, 14 percent, and -4 percent. Calculate the arithmetic and geometric average returns for this investment, and determine what the investor's actual dollar-weighted average return was for this five-year period. Why is the dollar-weighted average return higher or lower than the geometric average return?

Reference no: EM131813768

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